Antibody-targeted nanoparticles have the potential to significantly increase the therapeutic index of cytotoxic anticancer therapies by directing them to tumor cells. Using antibodies or their fragments requires careful engineering because multiple parameters, including affinity, internalization rate and stability, all need to be optimized. Here, we present a case study of the iterative engineering of a single chain variable fragment (scFv) for use as a targeting arm of a liposomal cytotoxic nanoparticle. We describe the effect of the orientation of variable domains, the length and composition of the interdomain protein linker that connects VH and VL, and stabilizing mutations in both the framework and complementarity-determining regions (CDRs) on the molecular properties of the scFv. We show that variable domain orientation can alter cross-reactivity to murine antigen while maintaining affinity to the human antigen. We demonstrate that tyrosine residues in the CDRs make diverse contributions to the binding affinity and biophysical properties, and that replacement of non-essential tyrosines can improve the stability and bioactivity of the scFv. Our studies demonstrate that a comprehensive engineering strategy may be required to identify a scFv with optimal characteristics for nanoparticle targeting.