Magnetic alginate microcapsules containing the extractant 2-ethylhexyl phosphonic acid mono-2-ethylhexyl ester (P507) were prepared for adsorption and selective separation of neodymium using equilibrium batch experiments. The effect of various parameters such as adsorbent dose, contact time, temperature, pH, and metal ion concentration on adsorption was investigated. The results demonstrated that the adsorption data fit well the pseudosecond order kinetic model, and the Langmuir adsorption isotherm was suitable for the description of adsorption process. The adsorption capacity had the order Pb2+ > Nd3+ > Cu2+ > Zn2+ > Co2+ > Ni2+ for mono- and multicomponent systems, and Nd3+ could be selectively separated from the mixed Nd3+/Co2+ and Nd3+/Zn2+ solutions over the whole concentration range. Furthermore, solvent extraction and ion exchange mechanisms were confirmed to contribute to the adsorption process by FTIR spectra studies, pH analyses, and adsorption isotherms with possible structures of the complex proposed. Thermogravimetric analysis, desorption, and regeneration tests forecasted that the magnetic alginate P507 microcapsules would be an excellent candidate for their potential industrial application.