The sedimentation stability of a carbonyl iron (CI)-based magnetorheological (MR) fluid was improved by wrapping CI particles with a polystyrene (PS) foam layer. The PS layer on the CI particles was synthesized via conventional dispersion polymerization and was subsequently foamed using a supercritical carbon dioxide fluid to produce core shell structured particles. The density of particles decreased after the PS-layer wrapping and subsequent PS-layer foaming. The surface morphology was observed by scanning electron microscope (SEM) and the specific surface areas were determined by Brunauer-Emmett-Teller (BET) adsorption measurements. Both modifications (PS-layer wrapping and foaming) increased the surface roughness of the particles, yet preserved particle's spherical shape. The effect of the volume expansion after modification on the magnetorheological properties was investigated by using a vibrating sample magnetometer (VSM) and a rotational rheometer. All suspensions tested presented similar MR behaviors with the only difference in their yield stress strengths. Finally, the sedimentation properties of the synthesized particles was examined using a Turbiscan apparatus. MR fluids containing the newly developed CI particles wrapped with the foamed PS layer exhibited remarkably improved stability against sedimentation due to the reduced mismatch in density between the particles and the carrier medium.