Recent advancement in nanotechnology seeks exploration of new techniques for improvement in the molecular, chemical, and biological properties of nanoparticles. In this study, carbon modification of octahedral-shaped magnetic nanoparticles (MNPs) was done using two-step chemical processes with sucrose as a carbon source for improvement in their electrochemical application and higher molecular biocompatibility. X-ray diffraction analysis and electron microscopy confirmed the alteration in single-phase octahedral morphology and carbon attachment in Fe3O4 structure. The magnetization saturation and BET surface area for Fe3O4, Fe3O4/C, and α-Fe2O3/C were measured as 90, 86, and 27 emu/g and 16, 56, and 89 m2/g with an average pore size less than 7 nm. Cyclic voltammogram and galvanostatic charge/discharge studies showed the highest specific capacitance of carbon-modified Fe3O4 and α-Fe2O3 as 213 F/g and 192 F/g. The in vivo biological effect of altered physicochemical properties of Fe3O4 and α-Fe2O3 was assessed at the cellular and molecular level with embryonic zebrafish. Mechanistic in vivo toxicity analysis showed a reduction in oxidative stress in carbon-modified α-Fe2O3 exposed zebrafish embryos compared to Fe3O4 due to despaired influential atomic interaction with sod1 protein along with significant less morphological abnormalities and apoptosis. The study provided insight into improving the characteristic of MNPs for electrochemical application and higher biological biocompatibility.