Atom transfer radical polymerization (ATRP) of 2-isopropenyl-2-oxazoline was optimized both in solution and initiated from carbonyl iron (CI) particle surface (SI-ATRP) in order to obtain polymers with well-defined molar mass and narrow dispersity. The polymerization procedure was thoroughly investigated by size exclusion chromatography and 1H NMR and optimized from the point of view type of initiator, ligand, copper catalyst, and solvent. Finally, the poly(2-isopropenyl-2-oxazoline) (PIPOx) with controlled molar masses up to 20,000 g/mol and dispersity in the range of 1.2–1.5 were successfully prepared, while high conversions could be reached. Polymerization conditions using halogen exchange leading to well-defined PIPOx were also developed and used for SI-ATRP. SI-ATRP was finally applied for synthesis of magnetic CI-PIPOx core–shell particles with two various molar masses of the grafted PIPOx. Finally, as a proof of applicability of such hybrid particles, the particles were dispersed in the phosphate buffer saline and glycerol to obtain the magnetorheological fluid with blood-like characteristics. Magnetorheological and cytotoxicity investigations proved that non-cytotoxic CI-PIPOx core–shell particles provided the system with sufficient yield stress values to act as an embolization agent.