The preparation of iron oxide nanoparticles in the mesopore of silicate MCM-41 and MCM-48 materials is demonstrated. The encapsulation of iron oxy-hydroxides was carried out at room temperature by incipient wetness method and the corresponding oxides were obtained by calcination. This process not only resulted in entrapment of iron oxy-hydroxides / oxides in the mesopores but also led to isomorphous substitution of trivalent iron in the silicate framework. The encapsulated nanoparticles exhibit superparamagnetism while the substituted iron shows paramagnetic behavior. The above is ascertained by using various techniques viz., X-ray diffraction (XRD), diffuse reflectance ultraviolet-visible (DRUV-VIS), electron paramagnetic resonance (EPR), Mössbauer, and magnetic susceptibility measurements.