Multifunctional superparamagnetic nanoparticles have been developed for a wide range of applications in nanomedicine, such as serving as tumor-targeted drug carriers and molecular imaging agents. To function in vivo, the development of these novel materials must overcome several challenging requirements including biocompatibility, stability in physiological solutions, nontoxicity, and the ability to traverse biological barriers. Here we report a PEG-mediated synthesis process to produce well-dispersed, ultrafine, and highly stable iron oxide nanoparticles for in vivo applications. Utilizing a biocompatible PEG coating bearing amine functional groups, the produced nanoparticles serve as an effective platform with the ability to incorporate a variety of targeting, therapeutic, or imaging ligands. In this study, we demonstrated tumor-specific accumulation of these nanoparticles through both magnetic resonance and optical imaging after conjugation with chlorotoxin, a peptide with high affinity toward tumors of the neuroectodermal origin, and Cy5.5, a near-infrared fluorescent dye. Furthermore, we performed preliminary biodistribution and toxicity assessments of these nanoparticles in wild-type mice through histological analysis of clearance organs and hematology assay, and the results demonstrated the relative biocompatibility of these nanoparticles.