This study intended to prepare iron oxide nanoparticle-entrapped chitosan (CS) nanoparticles for stem cell labeling. The nanoparticles were synthesized by polymerizing iron oxide nanoparticle-associated methacrylic acid monomer in the presence of CS. TEM revealed that the well-defined iron oxide nanoparticles were successfully encapsulated inside the CS nanoparticles. The effect of CS at different [NH2]/[COOH] molar ratios on particle size, surface charge, thermal stability and magnetic properties was determined systematically. Internalization and localization of the coated nanoparticles were evaluated by atomic absorption spectrometry and confocal laser scanning microscopy. The Kusa O cell line was chosen as a stem cell model. Interestingly, the uptake of iron oxide-entrapped CS nanoparticles was remarkably enhanced under magnetization and the nanoparticles were mostly located inside cellular compartments. It can be concluded that the iron oxide-entrapped CS nanoparticles have a strong potential for stem cell labeling.