Core-shell structured soft magnetic carbonyl iron (CI) particles coated with poly(glycidyl methacrylate) were fabricated using a dispersion polymerization method. The surface of the CI particles was pretreated with 4-aminobenzoic acid to enhance the affinity between CI and poly(glycidyl methacrylate) (PGMA). The synthesized CI/PGMA coreshell particles were characterized by scanning electron microscopy, energy-dispersive X-ray spectroscopy, Fourier transform infrared spectroscopy, and vibrating sample magnetometry. The CI/PGMA particles were dispersed into a nonmagnetic liquid for applications as a magnetorheological (MR) fluid, in which the rheological properties can be altered significantly by an external magnetic field. The MR suspension was analyzed using a rotational rheometer at various magnetic field strengths. Although the fabricated CI particles exhibited lower MR properties than pure CI particles, they showed improved dispersion stability according to the Turbiscan apparatus.