Size-selective synthesis of very small iron oxide nanoparticles (IONP; 4–8 nm) was achieved by the thermal decomposition of iron acetylacetonate in diethylenglycol by a simple one-pot reaction. The particles were functionalized on the one hand with poly(vinylpyrrolidone) (PVP) directly during the formation of the particles and on the other hand by a simple postsynthetic reaction with citrate, ascorbate, tartrate, dextran 60, gum Arabic, PVP, or poly(ethyleneglycol) (PEG). In view of medical and environmental applications, the stability of the particles was measured with dynamic light scattering in water as well as in physiological media containing buffers (4-(2-hydroxyethyl)-1-piperazineethanesulfonic acid (IP-HEPES), phosphate buffered saline (PBS)), high salt concentrations (Elendt M7), or proteins (Dulbecco’s modified eagle medium (DMEM) with and without 10 % fetal calf serum (FCS)). The effect of the functionalization of the nanoparticles on the production of radical oxygen species (ROS) was investigated during the Fenton reaction, showing that the nature of the functionalization can raise the production of ROS drastically. To extend the range of applications, the one-pot reaction with PVP was expanded by an additional step, allowing tagging of the particles with various fluorescein derivatives. In this way, fluorescent nanoparticles exhibiting emissions in the range of 475–553 nm were obtained.