The growth mechanism of magnetic nanoparticles (NPs) in the presence of graphite oxide (GO) has been investigated by varying the iron precursor dosage and reaction time (product donated as MP/GO). The synthesized magnetic NPs were anchored on the GO sheets due to the abundant oxygen-containing functionalities on the GO sheets such as carboxyl, hydroxyl and epoxy functional groups. The introduced NPs changed the intrinsic functionalities and lattice structure of the basal GO as indicated by FT-IR, Raman and XRD analysis, and this effect was enhanced by increasing the amount of iron precursor. Uniform distribution of NPs within the basal GO sheets and an increased particle size from 19.5 to 25.4, 31.5 and 85.4 nm were observed using scanning electron microscope (SEM) and transmission electron microscope (TEM) when increasing the weight ratio of GO to iron precursor from 10 : 1, to 5 : 1, 1 : 1 and 1 : 5, respectively. An aggregation of NPs was observed when increasing the iron precursor dosage or prolonging the reaction time from 1 to 8 h. Most functionalities were removed and the magnetic NPs were partially converted to iron upon thermal treatment under a reducing condition. The GO and MP/GO nanocomposites reacted for one and two hours (denoted as MP/GO1-1 h and MP/GO1-2 h) were converted from insulator to semiconductor after the annealing treatment as annealed GO (A-GO, 8.86 S cm−1), annealed MP/GO1-1 h (A-MP/GO1-1 h, 7.48 × 10−2 S cm−1) and annealed MP/GO1-2 h (A-MP/GO1-2 h, 7.58 × 10−2 S cm−1). The saturation magnetization was also enhanced significantly after the annealing treatment, increased from almost 0 to 26.7 and 83.6 emu g−1 for A-MP/GO1-1 h and A-MP/GO1-2 h, respectively.