Ferrofluids are attractive candidates for magnetic targeting system because of their fluidity and magnetism. The magnetic nanoparticles in ferrofluids should have combined properties of superparamagnetic behavior, target localization, and biocompatibility. The magnetic targeting and biocompatibility of superparamagnetic iron oxide nanoparticles stabilized by alginate (SPION-alginate) was investigated in vitro and in vivo. The localization of SPION-alginate by an external magnetic field in vitro was quantitatively evaluated by determining the iron content, and the results revealed that the localization ratio of SPION-alginate was 56%. Magnetic targeting of the SPION-alginate after femoral artery administration with the magnetic field in rats was quantitatively investigated by iron content and qualitatively confirmed by histological evaluation and magnetic resonance imaging. The ratio of iron content between the target site and the nontarget site were 8.88 at 0.5 h and 7.50 at 2 h, respectively. The viability of RAW264.7 cells and L929 cells was apparently unaltered upon exposure to SPION-alginate. The incubation with erythrocytes indicated that the SPION-alginate did not induce erythrocytes hemolysis and aggregation. In conclusions, the SPION-alginate had magnetic targeting with an external magnetic field and did not be detained at the injection site without the magnetic field. The SPION-alginate was generally considered to be biocompatible in cytotoxicity and hemolysis aspects.