Targeted cancer therapy facilitates localizing the action of chemotherapeutic drugs at the tumor site enhancing the therapeutic efficacy and reducing the side effects to the healthy cells. The homing property of mesenchymal stem cells (MSCs), towards the tumor tissues makes them a potential cell-based delivery system for targeted cancer therapy. Along with chemotherapy, hyperthermia has gained interest as a treatment modality of cancer due to the higher sensitivity of the cancer cells towards heat and also due to its action on tumor cells to enhance sensitization towards chemotherapy or radiotherapy. In the current study, we have shown the multifaceted application of magnetic nanoparticles (MNPs) as a drug delivery vehicle to deliver anti-cancer drug paclitaxel and also as an inducer for magnetic hyperthermia under alternating magnetic field. The combined approach of paclitaxel loaded MNPs and hyperthermia demonstrated enhanced therapeutic efficacy as compared to any single therapy. Further, we have employed MSCs as carrier for these drugs loaded MNPs to achieve targeted and uniform distribution of the MNPs at the tumor site. We have evaluated the efficacy of the system in in vitro and in vivo prostate tumor model. The in vivo tumor study shows uniform distribution of drug loaded MNPs with use of mesenchymal stem cells as a delivery vehicle and combination of hyperthermia and MNP mediated drug delivery results in better tumor remission.