Magnetic nanoparticles were synthesized by the co-precipitation of Fe2+ and Fe3+ using ammonium hydroxide (NH4OH). The obtained nanoparticles were characterized by X-ray powder diffraction. transmission electron microscopy, scanning electron microscopy, Fourier transform infrared (FT-IR) spectroscopy and vibrating sample magnetometer. In order to prepare a biocompatible water-based magnetic fluid, the nanoparticles were modified by dextran through a two-step method. The influences of dextran molecular weight on the size, morphology, coating efficiency and magnetic property of magnetite/dextran nanocomposite were investigated. The magnetite/dextran nanocomposite was dispersed in water to form a magnetic fluid by ball milling. The rheological property of magnetic fluids was investigated using a rotating rheometer. (C) 2009 Elsevier B.V. All rights reserved.