A low temperature polyol process, based on glycolaldehyde mediated partial reduction of FeCl36H2O at 120 °C in the presence of sodium acetate as an alkali source and 2, 2′-(ethylenedioxy)- bis-(ethylamine) as an electrostatic stabilizer has been used for the gram-scale preparation of biocompatible, water-dispersible, amine functionalized magnetite nanoparticles(MNPs) with an average diameter of 6 0.75nm. With a reasonably high magnetization (37.8e.m.u.) and amine groups on the outer surface of the nanoparticles, we demonstrated the magnetic separation and concentration implications of these ultrasmall particles in immunoassay. MRI studies indicated that these nanoparticles had the desired relaxivity for T2 contrast enhancement in vivo. In vitro biocompatibility, cell uptake and MR imaging studies established that these nanoparticles were safe in clinical dosages and by virtue of their ultrasmall sizes and positively charged surfaces could be easily internalized by cancer cells. All these positive attributes make these functional nanoparticles a promising platform for further in vitro and in vivo evaluations. © 2010 IOP Publishing Ltd.