This article delineates the design and synthesis of a novel, bio-functionalized, magneto-fluorescent multifunctional nanoparticles suitable for cancer-specific targeting, detection and imaging. Biocompatible, hydrophilic, magneto-fluorescent nanoparticles with surface-pendant amine, carboxyl and aldehyde groups were designed using o-carboxymethyl chitosan (OCMC). The free amine groups of OCMC stabilized magnetite nanoparticles on the surface allow for the covalent attachment of a fluorescent dye such as rhodamine isothiocyanate (RITC) with the aim to develop a magneto-fluorescent nanoprobe for optical imaging. In order to impart specific cancer cell targeting properties, folic acid and its aminated derivative was conjugated onto these magneto-fluorescent nanoparticles using different pendant groups (-NH(2), -COOH, -CHO). These newly synthesized iron-oxide folate nanoconjugates (FA-RITC-OCMC-SPIONs) showed excellent dispersibility, biocompatibility and good hydrodynamic sizes under physiological conditions which were extensively studied by a variety of complementary techniques. The cellular internalization efficacy of these folate-targeted and its non-targeted counterparts were studied using a folate-overexpressed (HeLa) and a normal (L929 fibroblast) cells by fluorescence microscopy and magnetically activated cell sorting (MACS). Cell-uptake behaviors of nanoparticles clearly demonstrate that cancer cells over-expressing the human folate receptor internalized a higher level of these nanoparticle-folate conjugates than normal cells. These folate targeted nanoparticles possess specific magnetic properties in the presence of an external magnetic field and the potential of these nanoconjugates as T(2)-weighted negative contrast MR imaging agent were evaluated in folate-overexpressed HeLa and normal L929 fibroblast cells.