We report the development and in vitro study of a nanoconjugate serving as a targeted magnetic resonance imaging (MRI) contrast enhancement agent for detection of cancer cells overexpressing the folate receptor. The nanoconjugate was synthesized by coating superparamagnetic iron oxide nanoparticles with covalently bound bifunctional poly(ethylene glycol) (PEG), followed by conjugation with folic acid (FA). The specificity of the nanoconjugate targeting cancerous cells was demonstrated by comparative intracellular uptake of the nanoconjugate and PEG-/dextran-coated nanoparticles by human adenocarcinoma HeLa cells. Preferential targeting to cancerous cells was studied by comparing the uptake of the nanoconjugate by HeLa cells and by non-FR expressing osteosarcoma MG-63 cells. Uptake of the nanoconjugate by HeLa cells after 4 h incubation was found to be a 12-fold higher than that of PEG- or dextran-coated nanoparticles as quantified by inductively coupled plasma spectroscopy. A significant negative contrast enhancement was observed with magnetic resonance (MR) phantom imaging for HeLa cells over MG-63 cells, when both were cultured with the nanoconjugate. Specificity of the nanoconjugate for folate receptors was also verified with a competitive inhibition assay, in which HeLa cells were incubated with both NP-PEG-FA and free FA. The bifunctional PEG used has amide linkages within the PEG chains that can form interchain hydrogen bonding, leading to improved stability of the PEG coating. Self-assembled PEG can be controlled at the molecular level and are suitable for nanoscale coatings.