Current advances in nanobiotechnology have led to the development of new field of nanomedicine, which includes many applications of nano(bio)materials for both diagnostic and therapeutic purposes (theranostics). Major expectations and challenges are on bioengineered magnetic nanoparticles when their come to delivering drug compounds, especially to targeting anticancer drugs to specific molecular endpoints in cancer therapy. The unique physicochemical properties of these nanoparticles offer great promise in modern cancer nanomedicine to provide new technological breakthroughs, such as guided drug and gene delivery, magnetic hyperthermia cancer therapy, tissue engineering, cancer cell tracking and molecular magnetic resonance imaging. Along with the expanding interest in bio-engineered magnetic nanoproducts their potential toxicity has become one of the major concerns. To date, a number of recent scientific evidences suggest that certain properties of magnetic nanoparticles (e.g., enhanced reactive area, ability to cross cell membranes, resistance to biodegradation) may amplify their cytotoxic potential relative to bulk non-nanoscale counterparts. In other words, safety assessment developed for ordinary magnetic materials may be of limited use in determining the health and environmental risks of the novel bio-engineered magnetic nanoproducts. In the present paper we discuss the main directions of research conducted to assess the toxicity of magnetic nanocompounds in experimental in vitro and in vivo models, pointing to the key issues concerning the toxicological analysis of magnetic nanomaterials. In addition new research directions of nanotoxicological studies elucidating the importance of developing alternative methods for testing magnetic nano(bio)products are also presented.