Recent work on the magnetic characteristics of nanometer scale materials has suggested that magnetically isolated nanometer magnetic particles would show magnetic behavior different than those found in the bulk. Such behavior could be explored if such materials could be synthesized in sufficient quantities where the magnetic particles could be isolated from each other via encapsulation within a non-magnetic hen. We have investigated application of flame technology for the synthesis of this class of materials. A premixed methane/oxygen flame diluted with nitrogen has been used as the reacting environment in which iron pentacarbonyl and hexamethyldisiloxane were added as the magnetic and non-magnetic precursor materials. The results, based on x-ray diffraction, electron microscopy, Mossbauer effect, and magnetization data have shown that: (i) nanometer composite particles are formed containing 5-10 nm Fe2O3. encased in a silica particle whose diameter ranged from 30-100 nm, depending on loading and flame temperature, and (ii) the iron oxide clusters are magnetically isolated and in some cases show superparamagnetic behavior.