A homogeneous dispersion of nano iron oxide (IO) crystallites inside the hydroxyapatite (HA) particles was achieved by a co-precipitation method. This highly stable colloidal dispersion of magnetic nano composite (HAIO) was made without the use of any surfactants. The in situ generated dispersion of the composite powders showed submicron HA particles with ~5 nm iron oxide inside. The phase analysis results showed the presence of hydroxyapatite (HA) and iron oxide with no tertiary phase. The enhancement of relative peak intensities with increased percentage of iron oxide phase in X-ray diffraction analysis suggests the formation of iron oxide together with HA without affecting the phase purity of the latter, which is important when the biological behavior of HA is concerned. This also confirms the quantitative nature of the precipitated nanocomposites. The High Resolution Transmission Electron Microscope (HRTEM) of the composite shows elongated crystal flakes or platelike surfaces of HA crystallites having particle sizes in the range 70–100 nm. HRTEM with XRD analysis matches HAIO only with iron oxide particles of Magnetite (Fe3O4) and HA phases. The FTIR data confirm that the introduction of iron oxide did not produce any considerable change in the chemical structure of HA.