In this study, magnetic iron oxide (IOPs) nanoparticles were coated with gelatin B, and various parameters were investigated to find out effects of those parameters in the overall hydrodynamic size of the colloidal dispersions. Two different types of coating techniques, viz., in situ and separately precipitation/coating technique were investigated. In in situ precipitation/coating technique, precipitation, and coating of the IOPs were done simultaneously, while in separately precipitation/coating technique, the IOPs particles were separately precipitated and purified before surface coating was done. The colloidal dispersion obtained from these two methods showed drastically different viscosities as well as hydrodynamic size. It was found that in situ precipitation/coating technique gave smaller-sized monodispersed particles compare to separately precipitation/coating technique. In addition to the above two techniques, the desolvation/cross-linking technique was also investigated and found to, further, reduce the size of the ferrofluid prepared by the in situ and separately precipitation/coating techniques. The ferrofluids prepared using in situ as well as separately precipitation techniques were highly stable and did not sediment for more than 1 month. However, the desolvation/cross-linking technique gave dispersion with reduced stability. Nevertheless, by adjusting suitable combination of acetone and glyceraldehydes, ferrofluid with better stability could be produced by this technique.