In recent years, significant progress has been made in the surface functionalization of magnetic nanoparticles (MNPs), revolutionizing their utility in multimodal imaging, drug delivery, and catalysis. This progression, spanning over the last decade, has unfolded in discernible phases, each marked by distinct advancements and paradigm shifts. In the nascent stage, emphasis was placed on foundational techniques, such as ligand exchange and organic coatings, establishing the groundwork for subsequent innovations. This review navigates through the cutting-edge developments in tailoring MNP surfaces, illuminating their pivotal role in advancing these diverse applications. The exploration encompasses an array of innovative strategies such as organic coatings, inorganic encapsulation, ligand engineering, self-assembly, and bioconjugation, elucidating how each approach impacts or augments MNP performance. Notably, surface-functionalized MNPs exhibit increased efficacy in multimodal imaging, demonstrating improved MRI contrast and targeted imaging. The current review underscores the transformative impact of surface modifications on drug delivery systems, enabling controlled release, targeted therapy, and enhanced biocompatibility. With a comprehensive analysis of characterization techniques and future prospects, this review surveys the dynamic landscape of MNP surface functionalization over the past three years (2021–2023). By dissecting the underlying principles and applications, the review provides not only a retrospective analysis but also a forward-looking perspective on the potential of surface-engineered MNPs in shaping the future of science, technology, and medicine.