Gold coated magnetic nanoparticles (Au@MNPs) have become increasingly interesting to nanomaterial scientists due to their multifunctional properties and their potential in both analytical chemistry and nanomedicine. The past decade has seen significant progress in the synthesis and surface modification of Au@MNPs. This progress is based on advances in the preparation and characterization of iron/iron oxide nanocrystals with the required surface functional groups. In this critical review, we summarize recent developments in the methods of preparing Au@MNPs, surface functionalization and their application in analytical sensing and biomedicine. We highlight some of the remaining major challenges, as well as the lessons learnt when working with Au@MNPs.