Magnetic nanoparticles (MNPs) have attracted enormous research attention due to their unique magnetic properties that enable the detection by non-invasive medical imaging modality—magnetic resonance imaging (MRI). By incorporating advanced features, such as specific targeting, multimodality and therapeutic delivery, the detectability and applicability of MNPs have been dramatically expanded. A delicate design of structure, composition and surface chemistry is essential to achieving the desired properties in MNP systems, such as high imaging-contrast and chemical stability, non-fouling surface, target specificity and/or multimodality. This article presents the design fundamentals on the development of MNP systems, from discussion of material selection for nanoparticle cores and coatings, strategies for chemical synthesis and surface modification and their merits and limitations, to conjugation of special biomolecules for intended functions, and reviews the recent advances in the field.