Magnetic nanoparticles, also known as MNPs, are a class of non-invasive nanomaterials that may be used in a wide variety of biomedical applications. This has been done in an effort to integrate nanotechnology into actual medical practice. In particular, the development of MNPs has paved the way for the rapid detection and treatment of illnesses in the form of theranostic drugs, which may be administered at the same time. This review focuses on recent developments in the preparation and utilization of MNPs, from the synthesis and functionalization steps to the final design consideration in evading the body’s immune system for therapeutic and diagnostic applications. This study presents a conceptual framework of a wide variety of synthetic pathways, the majority of which are categorised as wet chemistry, state-of-the-art microfluidic reactors, and biogenic approaches. It also includes the most common coating materials that are used to stabilize the resultant MNPs. Magnetic nanoparticles have the capacity to be directed to a particular location by means of an external magnetic field, which demonstrates their location specificity. The processes of co-precipitation, thermal breakdown, hydrothermal synthesis, and polyol synthesis are now the most widely used methods for the manufacture of magnetic nanoparticles. The biocompatibility of magnetic nanoparticles may be considerably improved by the process of functionalization, which is a key step in the process. Polymers make up the vast majority of functionalization agents that are put to use. The production of magnetic nanoparticles as well as their functionalization will get more investigation throughout this study. In addition, the ideas of passive targeting and active targeting for effective cell internalization are detailed in depth. Passive targeting capitalizes on the one-of-a-kind characteristics of cancer, while active targeting makes use of new targeting ligands.