Water-dispersible magnetite nanoparticles functionalized with citric acid (CIT) modified β-cyclodextrin (CD) are prepared and curcumin (CUR) is loaded inside the cavity of CD. The CUR loading capacity of CD–CIT functionalized magnetite nanoparticles is found to be much larger than that of CD alone as well as the CD–CIT conjugate. The release profile of curcumin is found to follow zero order kinetics at the physiological pH, and thus, can release CUR at a constant rate, after the initial burst release. Relaxivity studies using NMR showed that the functionalized nanoparticles are suitable for contrast enhancement in MRI. Thus, the water-dispersible, CIT modified β-CD functionalized magnetite nanofluid is an efficient carrier for water insoluble curcumin, and can be used for magnetic drug targeting/delivery as well as for contrast enhancement in MRI due to the superparamagnetic magnetite core.