We have developed a facile method for preparing magnetic nanoparticles which couple strongly with a liquid crystal (LC) matrix, with the aim of preparing ferronematic liquid crystal colloids for use in magneto-optical devices. Magnetite nanoparticles were prepared by oxidizing colloidal Fe(OH)2 with air in aqueous media, and were then subject to alkaline hydrothermal treatment with 10 mol dm-3 NaOH at 100 ºC, transforming them into a polydisperse set of domain magnetite nanorods with maximal length ~500 nm and typical diameter ~20 nm. The nanorods were coated with 4-n-octyloxybiphenyl-4-carboxylic acid (OBPh) and suspended in nematic liquid crystal E7. As compared to the conventional oleic acid coating, this coating stabilizes LC-magnetic nanorod suspensions. The suspension acts as a ferronematic system, using the colloidal particles as intermediaries to amplify magnetic field– LC director interactions. The effective Frederiks magnetic threshold field of the magnetite nanorod–liquid crystal composite is reduced by 20% as compared to the undoped liquid crystal. In contrast with some previous work in this field, the magneto-optical effects are reproducible on time scales of months. Prospects for magnetically switched liquid crystal devices using these materials are good, but a method is required to synthesize single magnetic domain nanorods.