Nanoparticles (NPs) for targeted therapy are required to have appropriate size, stability, drug loading and release profiles, and efficient targeting ligands. However, many of existing NPs such as albumin, liposomes, polymers, gold NPs, etc. encounter size limit, toxicity and stability issues when loaded with drugs, fluorophores, and targeting ligands. Furthermore, antibodies are bulky and can greatly affect the physicochemical properties of the NPs, whereas many small molecule-based targeting ligands lack specificity. Here, we report utilization of biocompatible, biodegradable, small (~30 nm) and stable iron oxide NPs (IONPs) for targeted delivery of paclitaxel (PTX) to HER2/neu positive breast cancer using an anti-HER2/neu peptide (AHNP) targeting ligand. We demonstrate the uniform size and high stability of these NPs in biological medium, effective tumour targeting in live mice, as well as their efficient cellular targeting and selective killing in human HER2/neu-positive breast cancer cells.