Magnetic resonance imaging (MRI) has attracted intensive interest due to its non-invasive monitoring capacity. Gadolinium based contrast agents, most widely used CA, suffer from high level of toxicity and high threshold of detection. Superparamagnetic iron oxide nanoparticles (SPION) based contrast agents (CA) are good alternatives for gadolinium based CAs, since they have extraordinary magnetic properties within nanometer size and relatively low toxicity. Surface active group of SPIONs are mostly responsible for these advantages. In this thesis, we studied biofunctionalization of iron oxide magnetic nanoparticles with variety of peptide molecules for the solubilization and biofunctionalization of SPIONs. Particle synthesis was carried out via two methods: co-precipitation and thermal decomposition and they were compared by means of size and stability. Several characterization methods, such as Fourier Transform Infrared Spectroscopy (FT-IR), Circular Dichroism (CD), Rheology, X-ray diffraction (XRD) X-ray photon spectroscopy (XPS), vibrating sample magnetometer (VSM), Magnetic resonance imaging (MRI), Atomic Force Microscopy (AFM), Scanning Electron Microscopy (SEM), Transmission Electron Microscopy (TEM) were used in order to fully characterized the SPIONs prepared.methods were used in order to fully characterize the SPIONs. Thermal decomposition is the best method to control the particle size and avoid aggregation problems. Peptide amphiphile molecules are used to non-covalently functionalize SPIONs synthesized by thermal decomposition method to provide water solubility and biocompatibility. Particles are found to be around 35 nm with r2 values of 100.4 and 93.7 s-1mM-1 which are comparable with commercially available SPIONs. In vitro cell culture experiments revealed that peptide-SPION complexes are biocompatible and are localized around the cells due to their peptide coating. Finally, SPIONs were evaluated in terms of their potential use as MRI contrast agent.