We demonstrate a modified polyol process to synthesize silver nanoparticles on the surface of larger magnetite nanoparticles. The overall process consists of two step reactions. First the magnetite particles of 100–200 nm in diameter are functionalized with a coupling agent 3-mercaptopropyltrimethoxysilane (MPTMS) through a sol–gel reaction. The functionalization of the magnetite surface is confirmed with IR spectra. For the second step silver nitrate is reduced at the site of thiol groups of the functionalized magnetite surface with ethylene glycol (EG) and polyvinylpyrrolidone (PVP). It was observed that silver nanoparticles were formed on the surface of the magnetite particles from transmission electron microscopy images and chemical composition analysis with energy dispersive spectrometer.