Thermolysis of Fe(CO)₅ and Co₂(CO)₈, dissolved in tetrahydronaphthalene, in the presence of aluminum trialkyl leads to uniform‐sized Fe or FeCo nanoparticles, respectively. Subsequent treatment with very dilute oxygen forms a shell which protects the metallic or alloyed core of the particles against further oxidation. With the help of surfactants, for instance oleic acid or cashew nut shell liquid, the particles can be peptized in organic solvents like toluene or kerosene, resulting in magnetic fluids with extraordinary magnetic properties. The saturation of magnetization, M_s, of the fluids was determined by specific magnetization. The sizes and structure of the particles were investigated by transmission electron microscopy, and Moessbauer analysis showed that the core of the particles was metallic or alloyed, respectively. The particle surface termination was studied by X‐ray photoelectron spectroscopy and Auger electron spectroscopy. Copyright © 2005 John Wiley & Sons, Ltd.