Polyelectrolyte-coated magnetic nanoparticles were prepared by decorating the surface of superparamagnetic iron oxide nanoparticles (SPIONs) with crosslinked chitosan oligopolysaccharide (CS). These positively charged particles (CS-SPIONs) were then added to a negatively charged polymer (Nafion), and cast into membranes under an applied magnetic field. TEM and SAXS measurements confirmed this process created aligned, cylindrical nanodomains in the membranes. This was also indirectly confirmed by proton conductivity values. The strong electrostatic interaction between chitosan and Nafion prevented oxygen permeability and water evaporation at elevated temperatures through the proton conductive channels. The resultant proton exchange membranes showed lower conduction dependency to relative humidity, which is highly desirable for hydrogen fuel cells. The fuel cell performance tests were performed on the designed polyelectrolyte membrane by hydrogen-oxygen single cells at elevated temperature (120 °C) and low relative humidity.