To solve the sedimentation drawback of soft-magnetic carbonyl-iron (CI) particles for their application to a magneto-rheological (MR) fluid, the coating of a polyindole (PIn) onto the surfaces of CI microspheres was introduced through chemical oxidization polymerization using 4-aminobenzoic acid as a grafting chemical to increase the interaction between CI particles and PIn. The coated morphology was confirmed using a scanning electron microscope, whereas the reduced density was examined through a gas pycnometer. The effect of the coating on MR performance was analyzed using a rotation rheometer connected with a magnetic field generator. Based on the results of a dynamic oscillation rheological test, the CI/PIn-based MR fluid exhibited a more elastically solid behavior with the applied magnetic fields when compared to a pure CI-based MR suspension, showing an increased magnetic-field strength-dependent storage modulus from a strain sweep test. With a solid-like behavior under an applied external magnetic field, the storage modulus was observed to be higher than the loss modulus within the entire frequency range.