Nanoparticles are the materials having dimensions of the order of 100 nm or less. They exhibit a high surface/volume ratio leading to different properties far different from those of the bulk materials. The development of uniform nanoparticles has been intensively pursued because of their technological and fundamental scientific importance. A number of chemical methods are available and are extensively used, but these are often energy intensive and employ toxic chemicals. An alternative approach for the synthesis of uniform nanoparticles is the biological route that occurs at ambient temperature, pressure and at neutral pH. The main aim of this review is to enlist and compare various methods of synthesis of iron-based nanoparticles with emphasis on the biological method. Biologically induced and controlled mineralization mechanisms are the two modes through which the micro-organisms synthesize iron oxide nanoparticles. In biologically induced mineralization (BIM) mode, the environmental factors like pH, pO2, pCO2, redox potential, temperature etc govern the synthesis of iron oxide nanoparticles. In contrast, biologically controlled mineralization (BCM) process initiates the micro-organism itself to control the synthesis. BIM can be observed in the Fe(III) reducing bacterial species of Shewanella, Geobacter, Thermoanaerobacter, and sulphate reducing bacterial species of Archaeoglobus fulgidus, Desulfuromonas acetoxidans, whereas BCM mode can be observed in the magnetotactic bacteria (MTB) like Magnetospirillum magnetotacticum, M. gryphiswaldense and sulphate-reducing magnetic bacteria (Desulfovibrio magneticus). Magnetite crystals formed by Fe(III)-reducing bacteria are epicellular, poorly crystalline, irregular in shapes, having a size range of 10–50 nm super-paramagnetic particles, with a saturation magnetization value ranging from 75–77 emu/g and are not aligned in chains. Magnetite crystals produced by MTB have uniform species-specific morphologies and sizes, which are mostly unknown from inorganic systems. The unusual characteristics of magnetosome particles have attracted a great interdisciplinary interest and inspired numerous ideas for their biotechnological applications. The nanoparticles synthesized through biological method are uniform with size ranging from 5 to 100 nm, which can potentially be used for various applications.