Magnetic nanocomposites are known to possess potential applications due to their superparamagnetic and biocompatible nature. The present work describes the preparation of biocompatible magnetic hydrogel nanocomposites using biocompatible gelatin. The magnetic hydrogels were characterized by using techniques such as FTIR, scanning electron microscopy, transmission electron microscopy, X-ray diffraction, and thermal analysis. The swelling analysis of the samples was evaluated. The in vitro biocompatibility of hydrogels was evaluated by performing thrombus formation and haemolysis tests. The presence of biocompatible gelatin in the magnetic hydrogels enhances the water sorption behaviour and in vitro blood compatibility of magnetic nanocomposites. In addition to this the drug releasing studies were performed under external magnetic field. The results indicate that the prepared hydrogels may be useful for potential applications for magnetically controlled drug release-systems, magnetic-sensitive sensors, and pseudomuscular actuators. © 2011 Elsevier B.V.