Magnetorheological honing process is developed for nanofinishing of internal surfaces of ferromagnetic and non-ferromagnetic cylindrical objects. The process makes use of smart fluid called magnetorheological (MR) polishing fluid for finishing which has a property to become stiff in the existence of magnetic field. The smart MR polishing fluid is made with the ingredients of carbonyl iron (CI) particles, abrasive particles, and base fluid. Direct current given to the electromagnet coil engenders magnetic field on finishing tool surface. Magnetic force acts on magnetic CI particles which further exert the repulsive force on nonmagnetic silicon carbide (SiC) abrasive particles and performs finishing when tool rotates as well as reciprocates inside the cylindrical workpiece. The CI and SiC particles present in MR polishing fluid are magnetically simulated and analyzed using finite element (FE) analysis. The distribution of magnetic flux density and magnitude of magnetic force acting on CI particles are analyzed through FE analysis. It is found that the CI particles which are available adjacent to the active abrasives are major responsible for indenting the active abrasive particles into workpiece surface. Also, the effect of finishing tool surface areas and particles size on the strength of chains of CI particles in MR polishing fluid have been analyzed.