Open-ended, multi-wall carbon nanotubes (CNTs) with magnetic nanoparticles encapsulated within their graphitic walls (magCNTs) were fabricated by a combined action of templated growth and a ferrofluid catalyst/carbon precursor, and tested as drug hosts. The hybrid nanotubes are stable under extreme pH conditions due to particle protection provided by the graphitic shell. The magCNTs are promising for high capacity drug loading given that the magnetic functionalization did not block any of the active sites available for drug attachment, either from the CNT internal void or on the internal and external surfaces. This is in contrast to typical approaches of loading CNTs with particles that proceed through surface attachment or capillary filling of the tube interior. Additionally, the CNTs exhibit enhanced hydrophilic character, as shown by water adsorption measurements, which make them suitable for biological applications. The morphological and structural characteristics of the hybrid CNTs are evaluated in conjunction to their magnetic properties and ability for drug loading (diaminophenothiazine). The fact that the magnetic functionality is provided from 'inside the walls' can allow for multimode functionalization of the graphitic surfaces and makes the magCNTs promising for targeted therapeutic applications.