A novel, inexpensive biofunctionalization approach is adopted to develop a multimodal and theranostic nanoagent, which combines cancer-targeted magnetic resonance/optical imaging and pH-sensitive drug release into one system. This multifunctional nanosystem, based on an ultrasmall superparamagnetic iron oxide (USPIO) nanocore, is modified with a hydrophilic, biocompatible, and biodegradable coating of N-phosphonomethyl iminodiacetic acid (PMIDA). Using appropriate spacers, functional molecules, such as rhodamine B isothiocyanate, folic acid, and methotrexate, are coupled to the amine-derivatized USPIO-PMIDA support with the aim of endowing simultaneous targeting, imaging, and intracellular drug-delivering capability. For the first time, phosphonic acid chemistry is successfully exploited to develop a stealth, multifunctional nanoprobe that can selectively target, detect, and kill cancer cells overexpressing the folate receptor, while allowing real-time monitoring of tumor response to drug treatment through dual-modal fluorescence and magnetic resonance imaging. © 2009 Wiley-VCH Verlag GmbH & Co. KGaA, Weinheim.