Iron oxide (IO) nanoparticles hold great promise as diagnostic and therapeutic agents in oncology. Their intrinsic physical properties make IO nanoparticles particularly interesting for simultaneous drug delivery, molecular imaging, and applications such as localized hyperthermia. Multiple non-targeted IO nanoparticle preparations have entered clinical trials, but more exciting, new tumortargeted IO nanoparticle preparations are currently being tested in preclinical settings. This paper will analyze the challenges faced by this new theranostic modality, with a specific focus on the interactions of IO nanoparticles with the innate and adaptive immune systems, and their effect on nanoparticle biodistribution and tumor targeting. Next, we will review the critical need for innovative surface chemistry solutions and strategies to overcome the immune interactions that prevent existing tumor-targeted IO preparations from entering clinical trials. Finally, we will provide an outlook for the future role of IO nanoparticles in oncology, which have the promise of becoming significant contributors to improved diagnosis and treatment of cancer patients.