Cancer-related mortality is a leading cause of death among both men and women around the world. Target-specific therapeutic drugs, early diagnosis, and treatment are crucial to reducing the mortality rate. One of the recent trends in modern medicine is "Theranostics," a combination of therapeutics and diagnosis. Extensive interest in magnetic nanoparticles (MNPs) and ultrasmall superparamagnetic iron oxide nanoparticles (NPs) has been increasing due to their biocompatibility, superparamagnetism, less-toxicity, enhanced programmed cell death, and auto-phagocytosis on cancer cells. MNPs act as a multifunctional, noninvasive, ligand conjugated nano-imaging vehicle in targeted drug delivery and diagnosis. In this review, we primarily discuss the significance of the crystal structure, magnetic properties, and the most common method for synthesis of the smaller sized MNPs and their limitations. Next, the recent applications of MNPs in cancer therapy and theranostics are discussed, with certain preclinical and clinical experiments. The focus is on implementation and understanding of the mechanism of action of MNPs in cancer therapy through passive and active targeting drug delivery (magnetic drug targeting and targeting ligand conjugated MNPs). In addition, the theranostic application of MNPs with a dual and multimodal imaging system for early diagnosis and treatment of various cancer types including breast, cervical, glioblastoma, and lung cancer is reviewed. In the near future, the theranostic potential of MNPs with multimodality imaging techniques may enhance the acuity of personalized medicine in the diagnosis and treatment of individual patients.