Iron oxide magnetic nanoparticles (MNPs) are crucial in various areas due to their unique magnetic properties. However, their practical use is often limited by instability and aggregation in aqueous solutions. This review explores the advanced technique of dendrimer functionalization to enhance MNP stability and expand their application potential. Dendrimers, with their symmetric and highly branched structure, effectively stabilize MNPs and provide tailored functional sites for specific applications. We summarize key synthetic modifications, focusing on the impacts of dendrimer size, surface chemistry, and the balance of chemical (e.g., coordination, anchoring) and physical (e.g., electrostatic, hydrophobic) interactions on nanocomposite properties. Current challenges such as dendrimer toxicity, control over dendrimer distribution on MNPs, and the need for biocompatibility are discussed, alongside potential solutions involving advanced characterization techniques. This review highlights significant opportunities in environmental, biomedical, and water treatment applications, stressing the necessity for ongoing research to fully leverage dendrimer-functionalized MNPs. Insights offered here aim to guide further development and application of these promising nanocomposites.