The physical properties of the cubic and ferrimagnetic spinel ferrite LiFe5O8 has made it an attractive material for electronic and medical applications. In this work, LiFe5O8 nanosized crystallites were synthesized by a novel and eco-friendly sol-gel process, by using powder coconut water as a mediated reaction medium. The dried powders were heat-treated (HT) at temperatures between 400 and 1000 °C, and their structure, morphology, electrical and magnetic characteristics, cytotoxicity, and magnetic hyperthermia assays were performed. The heat treatment of the LiFe5O8 powder tunes the crystallite sizes between 50 nm and 200 nm. When increasing the temperature of the HT, secondary phases start to form. The dielectric analysis revealed, at 300 K and 10 kHz, an increase of ε′ (≈10 up to ≈14) with a tanδ almost constant (≈0.3) with the increase of the HT temperature. The cytotoxicity results reveal, for concentrations below 2.5 mg/mL, that all samples have a non-cytotoxicity property. The sample heat-treated at 1000 °C, which revealed hysteresis and magnetic saturation of 73 emu g−1 at 300 K, showed a heating profile adequate for magnetic hyperthermia applications, showing the potential for biomedical applications.