Carbon encapsulated iron/iron-oxide nanoparticles were obtained using laser pyrolysis method. The powders were processed to produce stable and biocompatible colloidal aqueous dispersions. The synthesis method consisted in the laser decomposition of an aerosol of ferrocene solution in toluene. This process generated, in a continuous way and in a single step, a nanocomposite formed by amorphous carbon nanoparticles of 50-100 nm size in which isolated iron based nanoparticles of 3-10 nm size are located. The effect of using different carriers and additives was explored in order to improve the efficiency of the process. The samples after purification by solid-liquid extraction with toluene, were oxidised in concentrated nitric acid solution of sodium chlorate, washed and finally ultrasonically dispersed in 1 mM tri-sodium citrate solutions. The dispersions obtained have hydrodynamic particle size less than 150 nut and are stable in the pH range of 2-11. Finally the shortening of the transversal relaxation time of water protons produced by the dispersed particles was studied in order to test the feasibility of these systems to be traced by magnetic resonance imaging techniques. (c) 2007 Elsevier Inc. All rights reserved.