Improved techniques for local administration of anticancer drugs are needed to reduce the side effects of chemotherapy owing to leakage of anticancer drugs from tumors and to enhance therapeutic efficacy. This study presents the development of smart ferrofluid that transforms immediately into a gel in tumors and generates heat in response to an alternating magnetic field (AMF), simultaneously releasing the anticancer drug. The smart ferrofluid, which is synthesized using less toxic magnetic materials (Fe3O4 nanoparticles), natural polysaccharides (alginate), and amino acids (cysteine), can also act as a contrast agent for magnetic resonance imaging (MRI). The ferrofluid also incorporates an anticancer drug (i.e., doxorubicin, DOX) via hydrogen bonds. AMF causes heating of gels prepared from the DOX-containing ferrofluid, resulting in gel shrinkage and DOX release. In vivo experiments demonstrated that the ferrofluid transforms into a gel in the tumor, with the gel remaining in the tumor. Furthermore, magnetic thermochemotherapy using this ferrofluid inhibited tumor growth, while magnetic hyperthermia alone had only a marginal effect. Thus, the combination of magnetic hyperthermia and chemotherapy may be important for suppressing tumor growth. In summary, the ferrofluid presented here has the potential to facilitate MRI-guided magnetic thermochemotherapy through a combination of endoscopic technologies in the future.