Labeling stem cells with FDA-approved superparamagnetic iron oxide particles makes it possible to track cells in vivo with magnetic resonance imaging (MRI), but high intracellular levels of iron can cause free radical formation and cytotoxicity. We hypothesized that the use of cationic liposomes would increase labeling efficiency without toxic effects. Rabbit skeletal myoblasts were labeled with iron oxide by: 1) uptake of iron oxide incorporated into cationic transfection liposomes (group I) or 2) customary endocytosis (group II). In both groups, cell proliferation and differentiation were measured and toxicity was assayed using trypan blue and ratio fluorescence microscopy with BODIPY 581/591 C11. The effects of the intracellular iron oxide on magnetic resonance image intensities were assessed in vitro and in vivo. Both methods resulted in uptake of iron intracellularly, yielding contrast-inducing properties on MRI images. In group II, however, incubation with iron oxide at high concentrations required for endocytosis caused generation of free radicals, a decrease in proliferation, and cell death. Cytotoxic effects in the remaining cells were still visible 24 h after incubation. Conversely, in group I, sufficient intracellular uptake for detection in vivo by MRI could be achieved at 100-fold lower concentrations of iron oxide, which resulted in a high percentage of labeled cells, high retention of the label, and no cytotoxic effects even after stressing the cells with a hypoxia-reoxygenation insult. The use of cationic liposomes for iron oxide stem cell labeling increases labeling efficiency approximately 100-fold without toxic effects. This technique results in high-contrast-inducing properties on MRI images both in vitro and in vivo and could thus be a valuable tool for tracking stem cells noninvasively.