The present study deals with a modified polyol process for synthesizing silver nanoparticles selectively on the surface of fine magnetite particles consisting of two step reactions, i.e. sol-gel reaction and silver reduction reaction. In the first step, the surface of magnetite particles is treated with thiol (S-H) groups which have a high affinity with silver using a coupling agent 3-mercaptopropyltrimethoxysilane(MPTMS). The second step is reducing silver nitrate with ethylene glycol at thiol groups on the magnetite particles, so called polyol process. Specifically this study is focused on understanding the effect of reaction parameters on the formation of silver nanoparticles at the surface of magnetite particles. The reaction parameters are amount of coupling agent MPTMS, solvent composition, mechanical dispersion treatment, dispersant for the sol-gel reaction and reduction time for the polyol process. The surface modification of magnetite is checked with FT-IR spectra and silver synthesis is analyzed with TEM, TEMEDS, and UV-vis spectrum. It is found that the MPTMS amount and mechanical dispersion conditions give relatively large influence on the pattern of silver formation.