Magnetic nanoparticles (MNPs) have gained significant attention among several nanoscale materials during the last decade due to their unique properties. These properties make them successful nanofillers for drug delivery and a number of new biomedical applications. MNPs are more useful when combined with biodegradable polymers. In this review, we discussed the synthesis of polycaprolactones (PCL) and the various methods of synthesizing magnetic iron oxide nanoparticles. Then, the synthesis of composites that is made of PCL and magnetic materials (with special focus on iron oxide nanoparticles) were highlighted. In addition, we comprehensively reviewed their application in drug delivery, cancer treatment, wound healing, hyperthermia, and bone tissue engineering. Other biomedical applications of the magnetic PCL such as mitochondria targeting are highlighted. Moreover, biomedical applications of magnetic nanoparticles incorporated into other synthetic polymers apart from PCL are also discussed. Thus, great progress and better outcome with functionalized MNPs enhanced with polycaprolactone has been recorded with the biomedical applications of drug delivery and recovery of bone tissues.