Uniform and extremely small-sized iron oxide nanoparticles (ESIONs) of < 4 nm were synthesized via the thermal decomposition of iron oleate complex in the presence of oleyl alcohol. Oleyl alcohol lowered the reaction temperature by reducing iron oleate complex, resulting in the production of small-sized nanoparticles. XRD pattern of 3 nm-sized nanoparticles revealed maghemite crystal structure. These nanoparticles exhibited very low magnetization derived from the spin-canting effect. The hydrophobic nanoparticles can be easily transformed to water-dispersible and biocompatible nanoparticles by capping with the poly(ethylene glycol)-derivatized phosphine oxide (PO-PEG) ligands. Toxic response was not observed with Fe concentration up to 100 mu g/mL in MTT cell proliferation assay of POPEG-capped 3 nm-sized iron oxide nanoparticles. The 3 nm-sized nanoparticles exhibited a high r(1) relaxivity of 4.78 mM(-1)s(-1) and low r(2)/r(1) ratio of 6.12, demonstrating that ESIONs can be efficient T-1 contrast agents. The high r(1) relaxivities of ESIONs can be attributed to the large number of surface Fe3+ ions with 5 unpaired valence electrons. In the in vivo T-1-weighted magnetic resonance imaging (MRI), ESIONs showed longer circulation time than the clinically used gadolinium complex-based contrast agent, enabling high-resolution imaging. High-resolution blood pool MR imaging using ESIONs enabled clear observation of various blood vessels with sizes down to 0.2 mm. These results demonstrate the potential of ESIONs as T-1 MRI contrast agents in clinical settings.