The aim of our study was to prepare multifunctional, biocompatible nanoparticles for site-specific drug delivery. Hydrophilic nanoparticles with surface-adorned amine, carboxyl, or aldehyde groups, to be later used for bio-conjugation, were designed using phosphonomethyl iminodiacetic acid (PMIDA) as the coupling agent. These PMIDA-coated cobalt oxide nanoparticles (PMIDA-CoO) were further functionalized with folic acid (FA), using simple technique. The particles show excellent aqueous dispersion stability in physiological pH without any deterioration in hydrodynamic size. The cytotoxicity and internalization efficiency of these nanocarriers have been evaluated on folate receptor over expressed KB and folate receptor lower expressed KG1a cells. Anticancer drugs such as doxorubicin and methotrexate were successfully attached to the folic acid-decoded PMIDA-CoO nanoparticles by simple reactions. Anticancer drug-loaded nanoparticles (FA-PMIDA-CoO) exhibit elevated cytotoxicity and induce apoptosis in cancer cells, which were confirmed by flow cytometry. Fluorescence microscopy study shows the higher amount of internalization of the noncomplex by KB cells, which clearly demonstrated that cells overexpressing the human folate receptor internalized a higher level of these nanoparticles–folate conjugates than folate receptor-negative control cells.