We present a simple, scalable, and low-cost route for producing aqueous colloids of nanometer size Fe cores coated with iron oxide and stabilized with sodium citrate. The Fe cores were obtained by mechanosynthesis by means of a highly exothermic solid-state reaction between FeCl3 and Mg, in a dispersive inert NaCl medium. The optimal experimental conditions for achieving a full reaction were determined with a Retsch 2000 oscillatory mill. Then the production yield was successfully 16-fold scaled using a rotatory Fritsch Pulverissete 7 mill. To provide biocompatibility and facilitate colloid stabilization, the Fe cores were coated with a Fe-oxide shell produced by chemical coprecipitation, and finally, the system Fe/FeOx was functionalized with sodium citrate in water. The so-obtained Fe/FeOx@Cit (4/3 < x < 3/2) nanoparticles have a mean size of about 11–12 nm, specific saturation magnetization around 130 Am2/kgFe and ζ -potential of −40 mV. The time dependence of the reaction progress could be described by a simple function of the mass ratio of milling balls to processed material and time. The resultant colloids are excellent candidates for biomedical and environmental remediation applications.