We have developed a novel microbial process that exploits the ability of Fe(III)-reducing microorganisms to produce copious amounts of extracellular magentites and metal-substituted magnetite nanoparticles. The Fe(III)-reducing bacteria ( Theroanaerobacter ethanolicus and Shewanella sp.) have the ability to reduce Fe(III) and various metals in aqueous media and form various sized magnetite and metal-substituted magnetite nano-crystals. The Fe(III)-reducing bacteria formed metal-substituted magnetites using iron oxide plus metals (e.g., Co, Cr, Mn, Ni) under conditions of relatively low temperature (<70 °C), ambient pressure, and pH values near neutral to slightly basic (pH = 6.5 to 9). Precise biological control over activation and regulation of the biosolid-state processes can produce magnetite particles of well-defined size (typically tens of nanometers) and crystallographic morphology, containing selected dopant metals into the magnetite (Fe 3− y X y O 4 ) structure (where X = Co, Cr, Mn, Ni). Magnetite yields of up to 20 g/L per day have been observed in 20-L vessels. Water-based ferrofluids were formed with the nanometer sized, magnetite, and metal-substituted biomagnetite particles.