Superparamagnetic iron oxides possess specific magnetic properties in the presence of an external magnetic field, which make them an attractive platform as contrast agents for magnetic resonance imaging (MRI) and as carriers for drug delivery. In this study, we investigate the drug delivery and the MRI properties of folate-mediated water-soluble iron oxide incorporated into micelles. Pluronic F127 (PF127), which can be self-assembled into micelles upon increasing concentration or raising temperatures, is used to decorate water-soluble polyacrylic acid-bound iron oxides (PAAIO) via a chemical reaction. Next, the hydrophobic dye Nile red is encapsulated into the hydrophobic poly(propylene oxide) compartment of PF127 as a model drug and as a fluorescent agent. Upon encapsulation, PAAIO retains its superparamagnetic characteristics, and thus can be used for MR imaging. A tumor-specific targeting ligand, folic acid (FA), is conjugated onto PF127-PAAIO to produce a multifunctional superparamagnetic iron oxide, FA-PF127-PAAIO. FA-PF127-PAAIO can be simultaneously applied as a diagnostic and therapeutic agent that specifically targets cancer cells that overexpress folate receptors in their cell membranes. PF127-PAAIO is used as a reference group. Based on FTIR and UV-vis absorbance spectra, the successful synthesis of PF127-PAAIO and FA-PF127-PAAIO is realized. The magnetic nanoparticle clusters of PF127-PAAIO and FA-PF127-PAAIO are visualized by transmission electron microscope (TEM). FA-PF127-PAAIO, together with a targeting ligand, displays a higher intracellular uptake into KB cells. This result is confirmed by laser confocal scanning microscopy (CLSM), flow cytometry, and atomic absorption spectroscopy (AAS) studies. The hysteresis curves, generated by using a superconducting quantum interference device (SQUID) magnetometer analysis, demonstrate that the magnetic nanoparticles are superparamagnetic with insignificant hysteresis. The MTT assay explains the negligible cell cytotoxicity of PF127-PAAIO and FA-PF127-PAAIO. In KB cells, the in vitro MRI study indicates the better T(2)-weighted images in FA-PF127-PAAIO than in PF127-PAAIO.