Abstract It is known that a suspension of relatively large micron-size particles dispersed in a ferrofluid of much smaller particles yields a magnetorheological flui d with superior properties. In the absence of applied field experiment reveals the presence of a nanoparticle cloud surrounding each micron-size particle. The present work derives a thermodynamic model of cloud concentration distribution. It is found that van der Waals forces predominate over magnetic dipolar forces in forming the clouds. Additional analysis reveals that a repulsion force arises due to squeezing of the clouds as two cloud-surrounded particles approach one another. Repulsion aids redispersion of the larger particles by helping to prevent their agglomeration.