The present invention provides stem cells loaded with bi-functional magnetic nanoparticles (nanoparticle-loaded stem cells (NLSC)) that both: a) heat in an alternating magnetic field (AMF); and b) provide MRI contrast enhancement for MR-guided hyperthermia. The nanoparticles in the NLSC are non-toxic, and do not alter stem cell proliferation and differentiation, the nanoparticles do however, become heated in an alternating magnetic field, enabling therapeutic applications for cancer treatment. NLSC can deliver hyperthermia to hypoxic areas in tumors for sensitization of those areas to subsequent treatment, thus delivering therapy to the most treatment-resistant tumor regions. The heating of diseased tissue either results in direct cell killing or makes the tumor more susceptible to radio- and/or chemotherapy. The NLSC of the present invention can be used for MR image-guided hyperthermia in oncology, in stem cell research for cell tracking and heating, and for elimination of mis-injected stem cells.