This paper describes a class of water based magnetic fluids that are specifically tailored to extract soluble organic compounds from water. These magnetic fluids are prepared by precipitation and consist of a suspension of similar to75 nm magnetite (Fe3O4) nanoparticles coated with a similar to9 nm bifunctional polymer layer comprised of an outer hydrophilic poly(ethylene oxide) (PEO) region for colloidal stability and an inner hydrophobic poly(propylene oxide) (PPO) region for solubilization of organic compounds. The particles exhibit a high capacity for organic solutes, with partition coefficients between the polymer coating and water on the order of 10(3) -10(5), which is consistent with values reported for solubilization of these organics in PEO-PPO-PEO block copolymer micelles. In bench scale experiments, high-gradient magnetic separation (HGMS) is able to recover the nanoparticles with 98% efficiency. Process options for particle regeneration in water purification applications are discussed.