Nanomaterials research has in part been focused on their use in biomedical applications for more than several decades. However, in recent years this field has been developing to a much more advanced stage by carefully controlling the size, shape, and surface-modification of nanoparticles. This review provides an overview of two classes of nanoparticles, namely iron oxide and NaLnF, and synthesis methods, characterization techniques, study of biocompatibility, toxicity behavior, and applications of iron oxide nanoparticles and NaLnF nanoparticles as contrast agents in magnetic resonance imaging. Their optical properties will only briefly be mentioned. Iron oxide nanoparticles show a saturation of magnetization at low field, therefore, the focus will be MLnF (Ln = Dy, Ho, and Gd) paramagnetic nanoparticles as alternative contrast agents which can sustain their magnetization at high field. The reason is that more potent contrast agents are needed at magnetic fields higher than 7 T, where most animal MRI is being done these days. Furthermore we observe that the extent of cytotoxicity is not fully understood at present, in part because it is dependent on the size, capping materials, dose of nanoparticles, and surface chemistry, and thus needs optimization of the multidimensional phenomenon. Therefore, it needs further careful investigation before being used in clinical applications.