The combination of photothermal and magnetic functionalities in one biocompatible nanoformulation forms an attractive basis for developing multifunctional agents for biomedical theranostics. Here, we report the fabrication of silicon-iron (Si-Fe) composite nanoparticles (NPs) for theranostic applications by using a method of femtosecond laser ablation in acetone from a mixed target combining silicon and iron. The NPs were then transferred to water for subsequent biological use. From structural analyses, it was shown that the formed Si-Fe NPs have a spherical shape and sizes ranging from 5 to 150 nm, with the presence of two characteristic maxima around 20 nm and 90 nm in the size distribution. They are mostly composed of silicon with the presence of a significant iron silicide content and iron oxide inclusions. Our studies also show that the NPs exhibit magnetic properties due to the presence of iron ions in their composition, which makes the formation of contrast in magnetic resonance imaging (MRI) possible, as it is verified by magnetic resonance relaxometry at the proton resonance frequency. In addition, the Si-Fe NPs are characterized by strong optical absorption in the window of relative transparency of bio-tissue (650-950 nm). Benefiting from such absorption, the Si-Fe NPs provide strong photoheating in their aqueous suspensions under continuous wave laser excitation at 808 nm. The NP-induced photoheating is described by a photothermal conversion efficiency of 33-42%, which is approximately 3.0-3.3 times larger than that for pure laser-synthesized Si NPs, and it is explained by the presence of iron silicide in the NP composition. Combining the strong photothermal effect and MRI functionality, the synthesized Si-Fe NPs promise a major advancement of modalities for cancer theranostics, including MRI-guided photothermal therapy and surgery.