Polyvinylpyrrolidone (PVP)-coated iron oxide nanoparticles were prepared by the thermal decomposition of Fe(CO)(5) (iron pentacarbonyl) in one step. X-ray diffraction (XRD), transmission electron microscopy (TEM), electrophoretic light scattering (ELS), infrared spectroscopy (FTIR) and X-ray photoelectron spectroscopy (XPS) together with the variation of the molar ratio of PVP/Fe(CO)(5), solvent, and molecular weight of PVP, were used to characterize the PVP-coated iron oxide nanoparticles. Fifty to hundred nanometer-sized iron oxide nanoclusters with a spherical shape were formed in dimethylformamide (DMF), used as a solvent, and exhibited an enhanced stability in the aqueous media. Their magnetic properties were investigated by superconducting quantum interface device (SQUID). The in vitro cytotoxicity test revealed that the PVP-coated iron oxide nanoparticles exhibited excellent biocompatibility by MTT assay. Magnetic resonance imaging (MRI) effect was observed with the administration of PVP-coated iron oxide nanoparticles through the marginal vein of rabbit, resulting in improved detection of the liver lesions.