The present work deals with the synthesis of nanosized γ-Fe₂O₃ by methods and its suspension in a biocompatible fluid consisting of cellulose in water whose properties seem different from the conventional ferro fluid and magnetic rheological fluid. From TEM and x-ray diffractions line broadening particle size has been estimated in the nanometer range. Mössbauer and magnetic measurements have been done to investigate the relaxation behavior of these nanoparticles which consists of significant amount of surface spins.  Biocompatibilities of suspensions have been confirmed using HeLa cell lines and can be suitable for different bioapplications.