The present study describes a systematic approach towards the design and development of novel, bio-functionalized, magneto-fluorescent nanoparticles for cancer-specific targeting. Biocompatible, hydrophilic, magneto-fluorescent nanoparticles with surface-pendant amine, carboxyl or aldehyde groups, to be later used for bio-conjugation, were designed using an aminophosphonic acid coupling agent. These magneto-fluorescent nanoparticles were further functionalized with folic acid, using diverse conjugation strategies. A series of new iron-oxide folate nanoconjugates with excellent aqueous dispersion stability and reasonably good hydrodynamic sizes under a wide range of physiological conditions were developed. These ultradispersed nanosystems were analyzed for their physicochemical properties and cancer-cell targeting ability, facilitated by surface modification with folic acid. The nanoparticle size, charge, surface chemistry, magnetic properties and colloidal stability were extensively studied using a variety of complementary techniques. Confocal microscopy, performed with folate receptor positive human cervical HeLa cancer cells, established that these non-cytotoxic iron-oxide folate nanoconjugates were effectively internalized by the target cells through receptor-mediated endocytosis. Cell-uptake behaviors of nanoparticles, studied using magnetically activated cell sorting (MACS), clearly demonstrated that cells over-expressing the human folate receptor internalized a higher level of these nanoparticle-folate conjugates than negative control cells.