Tailoring the surface and understanding the surface characteristics is necessary for biomedical applications of superparamagnetic nanoparticles. In this paper, superparamagnetic iron oxide nanoparticles (SPIONs) were prepared by thermal decomposition of iron nitrate in presence of stearic acid as surfactant. Due to the multilayer organization of surfactant molecules over the nanoparticle surface, the surface potential can be tuned by pH changes and hence the nanoparticles can be made dispersible in nonpolar as well as in polar solvents. We have presented a simple, facile procedure for controlled replacement of stearic acid from maghemite surface and subsequent derivatization by biocompatible dimercaptosuccinic acid (DMSA) to obtain ultrastable hydrophilic nanoparticles with unaltered morphology, phase and properties. The surface chemistry of the functionalized SPIONs was analyzed by Fourier transform infrared spectroscopy (FTIR), thermogravimetric analysis (TGA) and X-ray photoelectron spectroscopy (XPS) revealing the presence of bound and unbound thiol groups and disulfides, leading to its prolonged stability in aqueous medium. The consequence of spatially selective functionalization on the stability and solubility of surface hydrophilic SPION has also been realized. (C) 2012 Elsevier B. V. All rights reserved.