Magnetic nanoparticles (MNPs) are widely used in biosensing, bioimaging, and drug delivery. However, high quality superparamagnetic nanoparticles with uniform size were usually synthesized by thermal decomposition using organic solvents. To be suitable for biomedical applications, a facile and efficient water dispersion of iron oxide MNPs from solvent using an innovative agent, sodium oleate (NaOL) was described. The monodispersed MNPs (4 and 15 nm respectively) after transfer was biocompatible and stable at a broad temperature range (4–50°C) over months. More importantly, the NaOL coating allows for surface modification with selective functionality, rendering the aqueous MNPs highly customizable for biofunctionalization. Little effect on the superparamagnetism was observed after the water dispersion. To further evaluate its practical application in biosensing, custom MNPs were prepared for specific cardiac troponin I (cTnI) detection for myocardial infarction diagnosis. Specifically, gold nanorod (GNR) biochip was probed by the MNP-captured cTnI target analyte at varying concentrations. The signal transduction of the GNR sensor is based on the localized surface plasmon resonance (LSPR). The application of the MNPs resulted in a significant enhancement of the plasmonic response of the GNRs. As such, the MNP-mediated LSPR biosenisng showed a three times lower sensitivity as compared to the direct cTnI binding without functional MNPs. Computer simulation further elucidated that the enhancement was distance dependent between the MNP and the surface of the nanorod, which corroborated with experimental results.