Nano-carbon and iron composite—carbon-coated iron nanoparticles (CCINs) produced by carbon arc method can be used as a new kind of magnetic targeting induction heating drug carrier for cancer therapy. The structure and morphology of CCINs are studied by X-ray diffraction (XRD) and transmission electron microscope (TEM). Mossbauer spectra of these nanoparticles show that they contain only iron and carbon, without ferric carbide and ferric oxide. CCINs can be used as the magnetic drug carrier, with the effect of targeting magnetic induction heating in its inner core and higher drug adsorption in its nano-carbon shell outside because of its high specific surface area. CCINs can absorb Epirubicin (EPI) of 160 μg/mg measured by an optical spectrometer. In acute toxicity experiment with mice, the median lethal dose (LD50) of EPI is 16.9 mg/kg, while that of EPI-CCINs mixture is 20.7 mg/kg and none of the mice died after pure CCINs medication. The results show that pure CCINs belong to non-toxic grade and EPI delivery in mixture with CCINs can reduce its acute toxicity in mice. The magnetic properties of CCINs and their magnetic induction heating are investigated. The iron nanoparticle in its inner core has better magnetism with a good effect on targeting magnetic induction heating. When the CCINs are mixed with physiological salt water and are injected uniformly in pig’s liver, the temperature goes up to 48°C. While in the case that CCINs are filled in a certain section of pig’s liver, the temperature goes up to 52°C. In both cases the temperature is high enough to kill the cancer cell. CCINs have potential applications in cancer therapy.