Accurate theragnosis of tumour is essential for improving the life rate of tumour patients. Superparamagnetic iron oxide nanoparticles (SPIONs) have been used as both diagnostic and therapeutic agents. However, their application is often limited because of a lack of water solubility, lack of cancer treatment efficacy, and ineffective targeting of tumour cells. In this report, a double ligand (caffeic acid-polyethylene glycol-folic acid; FA-PEG-CA, caffeic acid-polyethylene glycol-pheophorbide-a; PheoA-PEG-CA) coated iron oxide nanoparticle has been fabricated that overcomes the limitations of conventional SPION. Photosensitizer and tumour targeting ligands were coated on SPION using a ligand-substitution method. We confirmed the successful substitution of oleic acid ligands with FA-PEG-CA and PheoA-PEG-CA ligands by FT-IR spectroscopy. The caffeic acid coated iron oxide nanoparticles (CAMNPs) also demonstrated high water solubility in an aqueous environment and folate-mediated active tumour targeting. The water solubility of CAMNPs was evaluated by DLS measurement and TEM images. The cytotoxicity of CAMNPs increased two-fold in MDA-MB-231 cells at a laser irradiation condition. The fabricated CAMNPs retained their ability to function as both MRI diagnostic and tumour-selective therapeutic agents. These results suggest that these efficient characteristics of CAMNPs can be incorporated into applications, thus enhancing the efficacy of clinical cancer treatment.