The objective of this study is to prepare biodegradable iron oxide nanoparticles with bioabsorbable gelatin. Nano-size gelatin composites with well-dispersed structure of ultra-small iron oxide nanoparticles within a gelatin nanoparticle were prepared by a micro-emulsion method. The gelatin iron oxide nanoparticles prepared were degraded with time in 20 mM citric acid buffer solution at pH 4.5, in remarked contrast to gelatin iron oxide nanoparticles prepared by the conventional co-precipitation method. When co-cultured with human bone marrow-derived mesenchymal stem cells, the gelatin iron oxide nanoparticles were internalized into cells and degraded with time intracellularly. The biodegradable gelatin iron oxide nanoparticles showed the T2-weighted signals of magnetic resonance imaging.