Superparamagnetic iron oxide nanoparticles (SPION) with appropriate surface chemistry have been widely used experimentally for numerous in vivo applications such as magnetic resonance imaging contrast enhancement, tissue repair, immunoassay, detoxification of biological fluids, hyperthermia, drug delivery and in cell separation, etc. All these biomedical and bioengineering applications require that these nanoparticles have high magnetization values and size smaller than 100 nm with overall narrow particle size distribution, so that the particles have uniform physical and chemical properties. In addition, these applications need special surface coating of the magnetic particles, which has to be not only non-toxic and biocompatible but also allow a targetable delivery with particle localization in a specific area. To this end, most work in this field has been done in improving the biocompatibility of the materials, but only a few scientific investigations and developments have been carried out in improving the quality of magnetic particles, their size distribution, their shape and surface in addition to characterizing them to get a protocol for the quality control of these particles. Nature of surface coatings and their subsequent geometric arrangement on the nanoparticles determine not only the overall size of the colloid but also play a significant role in biokinetics and biodistribution of nanoparticles in the body. The types of specific coating, or derivatization, for these nanoparticles depend on the end application and should be chosen by keeping a particular application in mind, whether it be aimed at inflammation response or anti-cancer agents. Magnetic nanoparticles can bind to drugs, proteins, enzymes, antibodies, or nucleotides and can be directed to an organ, tissue, or tumour using an external magnetic field or can be heated in alternating magnetic fields for use in hyperthermia. This review discusses the synthetic chemistry, fluid stabilization and surface modification of superparamagnetic iron oxide nanoparticles, as well as their use for above biomedical applications.