Mesenchymal stem cells (MSCs) have gained much interest to be used as targeting vehicle in cancer therapy due to the intrinsic tumor-homing behavior associated with them. In this scenario, superparamagnetic nanoparticles are emerging as an ideal probe for noninvasive cell tracking for different stem cell applications. In the study, it is demonstrated that the formulated aqueous dispersible glyceryl monooleate coated magnetic nanoparticles (MNPs) can act as a better labeling and efficient tracking agent without affecting the inherent properties of MSCs. The MNPs-MSCs facilitate the stem cell tracking by magnetic resonance imaging at a very low cell number having high T2 relaxivity and potentiates the use of MNPs-MSCs as a prospective diagnostic tool. Most importantly, the homing of MNPs-MSCs toward inflammation site, subcutaneous prostate tumor (small as well as large tumor), and in orthotopic prostate tumor suggests the clinical relevance of the system. In addition, intraperitoneal delivery of MNPs-MSCs shows enhanced tumor accumulation and less sequestration in liver as revealed by in vivo imaging and histological studies. The results here demonstrate that MNPs-MSCs may prove as a better targeted delivery agent for early diagnosis of tumors even of smaller size. © 2015 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim.