This study concerns the development of folic acid (FA)-functionalized iron oxide condensed colloidal magnetic clusters for a more selective delivery of doxorubicin (DOX) to tumor cancer cells overexpressing the folate receptor. Alginate-coated condensed magnetic nanoparticles (co-MIONs) were synthesized via an alkaline precipitation method of an iron precursor in the presence of sodium alginate. Poly(ethylene glycol) (OH-PEG-NH) was conjugated to the carboxylic acid end group of alginate and folic acid (FA) was conjugated to the hydroxyl terminal group of PEG to produce folate-functionalized, pegylated co-MIONS (Mag-Alg-PEG-FA). The physicochemical properties of nanoparticles were fully characterized. DOX was loaded on the nanoparticles, and the cellular uptake and anticancer efficacy of the nanoparticles were examined in cancer cell lines expressing and not expressing the folate receptor. The biocompatibility of the carrier (blank nanoparticles) was also evaluated by cytocompatibility and hemocompatibility experiments. The nanoparticles exhibited sustained DOX release in aqueous buffers and biorelevant media, which was responsive to pH and external alternating current magnetic fields. The effect of the magnetic field on DOX percentage release appeared to be independent of the timing (onset time) of magnetic field application, providing flexibility to the magnetic control of drug release from the nanoparticles. The blank nanoparticles were not cytotoxic and did not cause hemolysis. The DOX-loaded and FA-functionalized nanoparticles exhibited increased uptake and caused increased apoptosis and cytotoxicity against the MDA-MB-231 cell line, expressing the folate receptor, compared to the MCF-7 cell line, not expressing the folate receptor. The application of a 0.5 T magnetic field during incubation of the nanoparticles with the cancer cells increased the cellular uptake and cytotoxicity of the nanoparticles. The obtained results indicate the potential of the folate-functionalized, pegylated co-MIONS for a more efficacious DOX delivery to cancer cells of solid tumors.