Prolonged usage of traditional nanomaterials in the biological field has posed several short- and long-term toxicity issues. Over the past few years, smart nanomaterials (SNs) with controlled physical, chemical, and biological features have been synthesized in an effort to allay these challenges. The current study seeks to develop theranostic SNs based on iron oxide to enable simultaneous magnetic hyperthermia and magnetic resonance imaging (MRI), for chronic liver damage like liver fibrosis which is a major risk factor for hepatocellular carcinoma. To accomplish this, superparamagnetic iron oxide nanoparticles (SPIONs) were prepared, coated with a biocompatible and naturally occurring polysaccharide, alginate. The resultant material, ASPIONs were evaluated in terms of physicochemical, magnetic and biological properties. A hydrodynamic diameter of 40 nm and a transverse proton relaxation rate of 117.84 mM−1 s−1 pronounces the use of ASPIONs as an efficient MRI contrast agent. In the presence of alternating current of 300 A, ASPIONs could elevate the temperature to 45 °C or more, with the possibility of hyperthermia based therapeutic approach. Magnetic therapeutic and imaging potential of ASPIONs were further evaluated respectively in vitro and in vivo in HepG2 carcinoma cells and animal models of liver fibrosis, respectively. Finally, to introduce dual imaging capability along with magnetic properties, ASPIONs were conjugated with near infrared (NIR) dye Atto 700 and evaluated its optical imaging efficiency in animal model of liver fibrosis. Histological analysis further confirmed the liver targeting efficacy of the developed SNs for Magnetic theranostics and optical imaging as well as proved its short-term safety, in vivo.