Despite the significant success of clinical trials on cancer patients using the therapy with carbonyl iron (CI) particles, this topic laid dormant for over two decades. In this context, we developed a CI particle-based embolization agent via polymer surface engineering and tested its biocompatibility and behavior in contact with human blood. The finest grade of the CI particles was controllably grafted with poly(2-isopropenyl-2-oxazoline) (PiPOx) using surface-initiated atom transfer radical polymerization (ATRP) to achieve a system combining the properties of suitable size, high magnetization, and advantages at the cellular level connected to the presence of PiPOx. The cell viability of 3T3 fibroblasts and P388.D1 macrophages was investigated after treatment with particle extracts and was found to be concentration-dependent but generally demonstrated no or mild cytotoxicity. The PiPOx-grafted particles showed negligible effect on the breakdown of human erythrocytes and significantly improved hydrophilic-hemophilic properties when compared to bare CI. The magnetorheological (MR) activity of the particles dispersed in human blood was studied in vitro under shear mode conditions showing slightly decreased shear stresses but improved sedimentation stability. Moreover, the effect of PiPOx molecular weight on the studied parameters was monitored across the whole range of tests. The study demonstrates the potential of prepared core-shell structures in biomedical and related fields of application.