Magnetic nanoparticles with appropriate surface coatings are increasingly being used clinically for various biomedical applications, such as magnetic resonance imaging, hyperthermia, drug delivery, tissue repair, cell and tissue targeting and transfection. This is because of the nontoxicity and biocompatibility demand that mainly iron oxide-based materials are predominantly used, despite some attempts to develop ‘more magnetic nanomaterials’ based on cobalt, nickel, gadolinium and other compounds. For all these applications, the material used for surface coating of the magnetic particles must not only be nontoxic and biocompatible but also allow a targetable delivery with particle localization in a specific area. Magnetic nanoparticles can bind to drugs and an external magnetic field can be applied to trap them in the target site. By attaching the targeting molecules, such as proteins or antibodies, at particles surfaces, the latter may be directed to any cell, tissue or tumor in the body. In this review, different polymers/molecules that can be used for nanoparticle coating to stabilize the suspensions of magnetic nanoparticles under in vitro and in vivo situations are discussed. Some selected proteins/targeting ligands that could be used for derivatizing magnetic nanoparticles are also explored. We have reviewed the various biomedical applications with some of the most recent uses of magnetic nanoparticles for early detection of cancer, diabetes and atherosclerosis.