During this past decade, science and engineering have seen a rapid increase in interest for nanoscale materials with dimensions less than 100 nm, which lie in the intermediate state between atoms and bulk (solid) materials. Their attributes are significantly altered relative to the corresponding bulk materials as they exhibit size dependent behavior such as quantum size effects (depending on bulk Bohr radius), optical absorption and emission, coulomb staircase behavior (electrical transport), superparamagnetism and various unique properties. They are active components of ferrofluids, recording tape, flexible disk recording media along with potential future applications in spintronics: a new paradigm of electronics utilizing intrinsic charge and spin of electrons for ultra-high-density data storage and quantum computing. They are used in a gamut of biomedical applications: bioseparation of biological entities, therapeutic drugs and gene delivery, radiofrequency-induced destruction of cells and tumors (hyperthermia), and contrast-enhancement agents for magnetic resonance imaging (MRI). The magnetic nanoparticles have optimizable, controllable sizes enabling their comparison to cells (10-100 μm), viruses (20-250 nm), proteins (3-50 nm), and genes (10-100 nm). Scanning Electron Microscopy (SEM), Transmission Electron Microscopy (TEM), Atomic Force Microscopy (AFM) and X-ray photoelectron spectroscopy (XPS) provide necessary characterization methods that enable accurate structural and functional analysis of interaction of the biofunctional particles with the target bioentities. The goal of the present discussion is to provide a broad review of magnetic nanoparticle research with a special focus on the synthesis, functionalization and medical applications of these particles, which have been carried out during the past decade, and to examine several prospective directions.