We demonstrate fluorescent Fe embedded magnetic nanodiamonds by ion implantation and two-step annealing. The diamond characteristics with a highly ordered core and a graphite surface layer are maintained after the implantation process. After the two-step annealing process, a bright red fluorescence associated with nitrogen-vacancy centers is observed. These new fluorescent magnetic nanodiamonds can be used as a dual-function in vivo tracer with both optical visibility and magnetic resonance imaging capabilities. They are potentially useful for the more advanced in vivo biological and medical applications.