In the present paper, an eco-friendly synthesis route is proposed to produce fire-retardant magnetic nanoparticles (MNPs; Fe3O4)/hydroxyl acid cellulose phosphate (HACP) composite. Dialdehyde cellulose phosphate (DACP) experienced an intramolecular Cannizzaro reaction during the in situ preparation of MNPs and produced HACP. The (Fe3+/Fe2+) co-precipitation method was employed to prepare the MNPs/HACP composite from DACP. The microstructural properties of the produced composite were assessed through FT-IR, Raman spectroscopy, x-ray diffraction (XRD), SEM, TGA, and DTA. The XRD analysis revealed a significant change in the DACP phase of the MNPs/HACP composite, and SEM images confirmed a homogenous distribution of MNPs in hydroxyl acid. Furthermore, DSC and TGA proved that char yield increased from 8% in DACP to 25% in the composite in the temperature range of 600 °C–800 °C; hence, it indicates that MNPs significantly increased the flame retardancy of the composite as compared to cellulose phosphate (CP) and DACP.