Early detection and treatment of disease is the most important component of a favorable prognosis. Biomedical researchers have thus invested tremendous effort in improving imaging techniques and treatment methods. Over the past decade, concepts and tools derived from nanotechnology have been applied to overcome the problems of conventional techniques for advanced diagnosis and therapy. In particular, advances in nanoparticle technology have created new paradigms for theranostics, which is defined as the combination of therapeutic and diagnostic agents within a single platform. In this Account, we examine the potential advantages and opportunities afforded by magnetic nanoparticles as platform materials for theranostics. We begin with a brief overview of relevant magnetic parameters, such as saturation magnetization, coercivity, and magnetocrystalline anisotropy. Understanding the interplay of these parameters is critical for optimizing magnetic characteristics needed for effective imaging and therapeutics, which include magnetic resonance imaging (MRI) relaxivity, heat emission, and attractive forces. We then discuss approaches to constructing an MRI nanoparticle contrast agent with high sensitivity. We further introduce a new design concept for a fault-free contrast agent, which is a T1 and T2 dual mode hybrid. Important capabilities of magnetic nanoparticles are the external controllability of magnetic heat generation and magnetic attractive forces for the transportation and movement of biological objects. We show that these functions can be utilized not only for therapeutic hyperthermia of cancer but also for controlled release of cancer drugs through the application of an external magnetic field. Additionally, the use of magnetic nanoparticles to drive mechanical forces is demonstrated to be useful for molecular-level cell signaling and for controlling the ultimate fate of the cell. Finally, we show that targeted imaging and therapy are made possible by attaching a variety of imaging and therapeutic components. These added components include therapeutic genes (small interfering RNA, or siRNA), cancer-specific ligands, and optical reporting dyes. The wide range of accessible features of magnetic nanoparticles underscores their potential as the most promising platform material available for theranostics.