Magnetic carbonyl iron (CI) particles have attracted great attention due to their high saturation magnetization and appropriate particle size for magnetorheological (MR) materials. However, hydrodynamic instability of the CI particle suspension such as sedimentation which was attributed to the large density mismatch between the dispersed CI particles and the medium has affected its predominant role for MR applications. In this study, we fabricated novel magnetic CI/polystyrene (CI/PS) composite via a facile solvent casting method and then adopted as dispersed phase of MR fluid. The CI particles were found to be embedded within PS matrix, preventing them contact each other directly, consequently improving stability of the CI suspension in the MR fluid.