The past two decades have seen a surge in the development and application of nanoparticles for biomedical uses, with a focused effort on engineering particles for ‘theranostic’ applications where diagnosis and disease treatment are possible using a single platform. Magnetic nanoparticles, in particular, are ideal candidates for this kind of multimodal action, given their potential use spans magnetic resonance (MR) imaging, magnetic hyperthermia and targeted drug delivery. This is due to unique properties their size bestows on them. Here, we examine these properties of magnetic nanoparticles and how they govern the particle efficacy for a desired application. Given the intimate link between synthetic approach chosen and subsequent properties, we will also discuss typical and emerging routes to magnetic nanoparticle preparation. We will, in detail, describe the uses of magnetic nanoparticles as diagnostic and therapeutic tools, with particular emphasis on their use as MR contrast agents and the most recent developments in targeted drug delivery. Finally, we will present an outlook for the future of these important materials.