Magnetic nanoparticles based hyperthermia therapy is a possible low cost and effective technique for killing cancer tissues in the human body. Fe₃O₄ and Fe₃O₄@YPO₄:5Eu hybrid magnetic nanoparticles are prepared by co-precipitation method and their average particle sizes are found to be 10 and 25 nm, respectively. The particles are spherical, non-agglomerated and highly dispersible in water. The crystallinity of as-prepared YPO₄:5Eu sample is more than Fe₃O₄@YPO₄:5Eu hybrid magnetic nanoparticles. The chemical bonds interaction between Fe₃O₄ and YPO₄:5Eu is confirmed through FeO–P. The magnetization of hybrid nanocomposite shows magnetization M_s = 11.1 emu g⁻¹ with zero coercivity (measured at 2 × 10⁻⁴ Oe) at room temperature indicating superparamagnetic behaviour. They attain hyperthermia temperature (42 °C) under AC magnetic field showing characteristic induction heating of the prepared nanohybrid and they will be potential material for biological application. Samples produce the red emission peaks at 618 nm and 695 nm, which are in range of biological window. The quantum yield of YPO₄:5Eu sample is found to be 12%. Eu³⁺ present on surface and core could be distinguished from luminescence decay study. Very high specific absorption rate up to 100 W g⁻¹ could be achieved. The intracellular uptake of nanocomposites is found in mouse fibrosarcoma (Wehi 164) tumor cells by Prussian blue staining.