The aim of this study was to investigate the pharmacokinetics and biodistribution in Sprague-Dawley rats, anti-tumor activity and acute toxicity in different tumor-bearing mice of novel biocompatible nanoparticles. Paclitaxel (PTX) was selected as a model drug and loaded on different tumor types and at various doses. The nanoparticles were prepared using a newly synthesized gelatin-oleic acid conjugate via self-assembly in an aqueous solution. The nanoparticles were further functionalized using folic acid (FA) as a targeting ligand for cancer. The in vivo effects of the nanoparticles were compared with the commercially available Taxol (a solution form of PTX) as a reference dosage form. The in vivo studies confirmed that nanoparticles showed improved therapeutic effects on tumors and significantly reduced the toxic effects associated with Taxol, even at the 50% lethal dose (LD50). The in vivo pharmacokinetic parameters and biodistribution of the nanoparticles containing PTX also indicated slower clearance, longer blood circulation and higher tumor selectivity. Furthermore, the functionalized nanoparticles with FA were more effective than the non-functionalized nanoparticles. Thus, the suitable properties of gelatin-oleic nanoparticles (GON) as a drug carrier and the effective targeting ligand could synergistically maximize the in vivo anti-tumor efficacy resulting in delayed tumor volume growth and hence, providing versatile strategies in cancer therapy and drug delivery.