Surface functionalized carbon-encapsulated iron nanoparticles (CEINs) were found to be a magnetic nanocatalyst for the efficient and highly selective synthesis of benzimidazoles. CEINs were covalently decorated with carboxyl or sulfonyl groups and their catalytic activity was examined. Carboxyl-modified CEINs were obtained via the radical or oxidative treatment, whilst the sulfonated CEINs were obtained using the one-step diazotization approach with sulfanilic acid and isoamyl nitrite. The content of surface acidic groups varied between the obtained materials and was found to be the highest for sulfonyl-modified CEINs. CEINs functionalized with sulfonyl groups were the most efficient and the most selective nanocatalyst for the synthesis of benzimidazoles. Various benzimidazoles were obtained in very high yields (92.5-97.0%). Both metallocene, aliphatic, heterocyclic and aromatic aldehydes substituted with different functional groups were subjected to the synthesis process. The reaction proceeded in a short time, which varied from 25 min to 65 min depending on the aldehyde used. Additionally, the mechanism of the studied catalytic condensation by applying sulfonated CEINs as the catalyst was discussed. Importantly, the developed magnetic nanocatalysts could be easily separated from the reaction mixture using a permanent magnet. The nanocatalysts can be used up to six reaction cycles without any significant loss of their catalytic activity. This work opens up new ways for very efficient and simple synthesis of benzimidazoles - an important class of organic compounds for various biomedical applications.