An aqueous magnetic fluid composition comprising water as a dispersion medium and fine ferromagnetic particles as a dispersed phase, in which a coupling agent having a hydrophilic group and at least one hydrolyzable group is chemically bonded by way of the reaction product of the hydrolyzable group to the surface of the fine ferromagnetic particles. The magnetic fluid composition is prepared by way of obtaining an intermediate medium by chemically bonding the coupling agent by way of the hydrolysis product to the fine particles and separating fine particles of poor dispersibility and evaporating the composite product of the hydrolysis and at least a portion of water.