Magnetic nanoparticles of spinel nanocrystalline cobalt ferrite were synthesized via the sol-gel method and subsequent annealing. The influence of the annealing temperature on the structure, magnetic properties, and magnetorheological effect was investigated. The finite crystallite size of the particles, determined by X-ray diffraction and the particle size observed via transmission electron microscopy, increased with the annealing temperature. The magnetic properties observed via a vibrating sample magnetometer showed that an increase in the annealing temperature leads to the increase in the magnetization saturation and, in contrast, a decrease in the coercivity. The effect of annealing on the magnetic properties of ferrite particles has been explained by the recrystallization process at high temperatures. This resulted in grain size growth and a decrease in an imposed stress relating to defects in the crystal lattice structure of the nanoparticles. The magnetorheological characteristics of suspensions of ferrite particles in silicone oil were measured using a rotational rheometer equipped with a magnetic field generator in both steady shear and small-strain oscillatory regimes. The magnetorheological performance expressed as a relative increase in the magnetoviscosity appeared to be significantly higher for suspensions of particles annealed at 1000 °C.