Layered double hydroxide (LDH) is regarded as a prominent flame-retardant nanoadditive for polymers. However, the flame-retardant efficiency of a LDH depends strongly on its dispersion state and composition. Usually, modification or functionalization of a LDH is crucial to obtaining high-performance polymer nanocomposites. In order to develop multifunctional epoxy nanocomposites, in this study a LDH was first modified by biobased flame-retardant species, phytic acid (Ph) and (hydroxypropyl)-sulfobutyl-beta-cyclodextrin sodium (CDBS), and subsequently decorated by Fe3O4 nanoparticles to obtain a Fe3O4 nanosphere@LDH hybrid. Results obtained from size distribution and transmission electron microscopy revealed that the Fe3O4 nanopartides with an average size of 8 nm were well decorated on the LDH platelet. The Fe3O4-decorated LDH hybrids facilitated their dispersion within an epoxy matrix, as indicated in X-ray diffraction. The incorporation of an as-prepared Fe3O4@Ph-CDBS-LDH hybrid into epoxy resin (EP) not only improved the flame-retardant properties but also endowed EP with increased thermal conductivity. Specifically, the peak heat release rate and total smoke production of the EP composite with 8 wt % Fe3O4@Ph-CDBS-LDH were decreased by 55% and 34%, respectively, in comparison to those of pristine EP, and the UL-94 V0 rating requirement can be met. The investigation provides a promising approach for the preparation of multifunctional LDH hybrids and related high-performance polymer nanocomposites by just using a functionalized nanomaterial.