The ability of magnetotactic bacteria (MTB) to orient in magnetic fields is based on the synthesis of magnetosomes, which are unique prokaryotic organelles comprising membrane-enveloped, nano-sized crystals of a magnetic iron mineral that are aligned in well-ordered intracellular chains. Magnetosome crystals have species-specific morphologies, sizes, and arrangements. The magnetosome membrane, which originates from the cytoplasmic membrane by invagination, represents a distinct subcellular compartment and has a unique biochemical composition. The roughly 20 magnetosome-specific proteins have functions in vesicle formation, magnetosomal iron transport, and the control of crystallization and intracellular arrangement of magnetite particles. The assembly of magnetosome chains is under genetic control and involves the action of an acidic protein that links magnetosomes to a novel cytoskeletal structure, presumably formed by a specific actin-like protein. A total of 28 conserved genes present in various magnetic bacteria were identified to be specifically associated with the magnetotactic phenotype, most of which are located in the genomic magnetosome island. The unique properties of magnetosomes attracted broad interdisciplinary interest, and MTB have recently emerged as a model to study prokaryotic organelle formation and evolution.