The iron nanoparticles coated with oleic acid and drugs such as folic acid/Amoxicillin were synthesized by high energy ball milling and characterized by X-ray diffraction, Transmission electron microscope, zeta potential, dynamic light scattering, Fourier Transform Infra red (FT-IR) measurements, and thermo gravimetric analysis (TGA). FT-IR and TGA measurements show good adsorption of drugs on oleic acid coated nanoparticles. Magnetic measurements indicate that saturation magnetization is larger for amoxicillin coated particles compared to folic acid coated particles. The biocompatibility of the magnetic nanoparticles prepared was evaluated by in vitro cytotoxicity assay using L929 cells as model cells. © 2014 AIP Publishing LLC.