Polyalphaolefin (PAO) oil is widely used as a dielectric liquid due to its outstanding dielectric strength, high flash point, good oxidation resistance, and stability. The dispersion of MgO nanoparticles in PAO yields nanofluids with many properties superior to base oils. This study clarifies the influence of MgO nanoparticles on the dielectric properties (breakdown voltage, volume resistivity, and relative permittivity) and heat transfer properties of PAO/MgO nanofluids. Changes in the concentration and size and the modification of MgO nanoparticles with surfactants change the dielectric and thermal performance of PAO/MgO nanofluids. Using PAO/MgO nanofluids as raw material to prepare dielectric fluid obtains a product with higher dielectric strength and thermal conductivity than those using PAO. The results show that PAO/MgO nanofluid-based dielectric fluid has the potential to be applied as a soft coating to protect electronic equipment in industries.