The highly filled isotropic polyurethane (PU) elastomer with a magnetorheological (MR) effect was prepared through an in situ polycondensation method. The carbonyl iron particles were treated by coupling agents and then the dispersions of polyol/carbonyl iron particles was prepared by a ball milling process. The dispersion problem of magnetizable particles at a high content in PU matrix was tried to overcome by the combination of surface modification, ball milling, and in situ polymerization. The microstructure and properties of the composite were examined in detail. With increasing the content of carbonyl iron particles, the degree of phase separation of PU increased and the glass transition temperature (T-g) of PU soft segment decreased. Highly filled carbonyl iron particles led to the decrease in the thermal stability of PU matrix, especially in the heating air atmosphere. The MR effect appeared when the content of carbonyl iron particles was higher than 50 wt %, and became relatively pronounced at a 70 wt % of carbonyl iron content. The mechanical properties of PU MR elastomers were deteriorated significantly at a high content of carbonyl iron. Surface modification of carbonyl iron particles can improve the mechanical properties to some extent; however, it was also found that surface modification led to a decrease in the MR effect because of the improved interfacial adhesion. The MR test showed that the maximum absolute MR effect and relative MR effect of PU composite were similar to 0.31 MPa and similar to 8.1% at 1 Hz and 400 mT with 70 wt % of carbonyl iron, respectively. (C) 2009 Wiley Periodicals, Inc. J Appl Polym Sci 114: 901-910, 2009