This study is focused on the controllable coating of the carbonyl iron (CI) particles widely applied in magnetorheology. These particles were grafted with poly(glycidyl methacrylate) (PGMA) with narrow polydispersity via surface-initiated atom transfer radical polymerization. Two types of core-shell particles differing in molecular weights of grafted polymer chains were synthesized. The effect of shell thickness on the thermo-oxidation stability of particles as well as the sedimentation stability of their silicone oil suspensions was evaluated. The successful coating process was confirmed by Fourier transform infrared spectroscopy and energy-dispersive spectrometry. The differences in the magnetic properties of bare and coated CI particles were clarified through vibrating sample magnetometry. Due to the controllable length of the PGMA grafts, the magnetic properties remain almost the same as those for bare CI. The magnetorheological (MR) behavior of silicone oil suspensions containing 60 wt% of bare CI particles as well as PGMA-coated analogues was investigated in the absence and in the presence of various magnetic field strengths, demonstrating the negligible impact of surface modification on final MR performance. Thus, the grafting of the particles with PGMA negligibly affected magnetic properties but considerably enhanced thermo-oxidation and sedimentation stabilities. Finally, a novel tensiometric method for sedimentation stability measurements of MR suspensions was successfully implemented.