Rod-like hard-magnetic nanoparticles of γ-Fe2O3 were used as an additive to a soft magnetic carbonyl iron (CI) microsphere-based magnetorheological (MR) suspension to improve the dispersion stability of the MR fluid and enhance its MR performance. The morphology of the pure CI microspheres and CI/γ-Fe2O3 mixture particles were examined by scanning electron microscopy. The MR properties of pure CI and CI/γ-Fe2O3 mixtures were measured from steady and oscillatory tests under different magnetic field strengths. The results showed that the CI/γ-Fe2O3 MR fluid exhibited higher yield behaviors with an enhanced MR effect than that of the pure CI MR fluid due to the increased magnetic properties. Physically attached γ-Fe2O3 nanoparticles onto the surface of micron-sized CI particles improved not only MR performance but also dispersion stability of the MR particles.