Herein we report a novel gadolinium-encapsulating iron oxide nanoparticle-based activatable NMR/MRI nanoprobe. In our design, Gd-DTPA is encapsulated within the poly(acrylic acid) (PAA) polymer coating of a superparamagnetic iron oxide nanoparticle (IO-PAA), yielding a composite magnetic nanoprobe (IO-PAA-Gd-DTPA) with quenched longitudinal spin-lattice magnetic relaxation (T(1)). Upon release of the Gd-DTPA complex from the nanoprobe's polymeric coating in acidic media, an increase in the T(1) relaxation rate (1/T(1)) of the composite magnetic nanoprobe was observed, indicating a dequenching of the nanoprobe with a corresponding increase in the T(1)-weighted MRI signal. When a folate-conjugated nanoprobe was incubated in HeLa cells, a cancer cell line overexpressing folate receptors, an increase in the 1/T(1) signal was observed. This result suggests that, upon receptor-mediated internalization, the composite magnetic nanoprobe degraded within the cell's lysosome acidic (pH 5.0) environment, resulting in an intracellular release of Gd-DTPA complex with subsequent T(1) activation. In addition, when an anticancer drug (Taxol) was coencapsulated with the Gd-DTPA within the folate receptor targeting composite magnetic nanoprobe, the T(1) activation of the probe coincided with the rate of drug release and corresponding cytotoxic effect in cell culture studies. Taken together, these results suggest that our activatable T(1) nanoagent could be of great importance for the detection of acidic tumors and assessment of drug targeting and release by MRI.