Nanoparticle additives increase the thermal conductivity of conventional heat transfer fluids at low concentrations, which leads to improved heat transfer fluids and processes. This study investigates lignin-coated magnetic nanocomposites (lignin@Fe3O4) as a novel bio-based magnetic nanoparticle additive to enhance the thermal conductivity of aqueous-based fluids. Kraft lignin was used to encapsulate the Fe3O4 nanoparticles to prevent agglomeration and oxidation of the magnetic nanoparticles. Lignin@Fe3O4 nanoparticles were prepared using a pH-driven co-precipitation method with a 3:1 lignin to magnetite ratio and characterized by X-ray diffraction, FT-IR, thermogravimetric analysis, and transmission electron microscopy. The magnetic properties were characterized using a vibrating sample magnetometer. Once fully characterized, lignin@Fe3O4 nanoparticles were dispersed in aqueous 0.1% w/v agar–water solutions at five different concentrations, from 0.001% w/v to 0.005% w/v. Thermal conductivity measurements were performed using the transient line heat source method at various temperatures. A maximum enhancement of 10% in thermal conductivity was achieved after adding 0.005% w/v lignin@Fe3O4 to the agar-based aqueous suspension at 45 °C. At room temperature (25 °C), the thermal conductivity of lignin@Fe3O4 and uncoated Fe3O4 agar-based suspensions was characterized at varying magnetic fields from 0 to 0.04 T, which were generated using a permanent magnet. For this analysis, the thermal conductivity of lignin magnetic nanosuspensions initially increased, showing a 5% maximum peak increase after applying a 0.02 T magnetic field, followed by a decreasing thermal conductivity at higher magnetic fields up to 0.04 T. This result is attributed to induced magnetic nanoparticle aggregation under external applied magnetic fields. Overall, this work demonstrates that lignin-coated Fe3O4 nanosuspension at low concentrations slightly increases the thermal conductivity of agar aqueous-based solutions, using a simple permanent magnet at room temperature or by adjusting temperature without any externally applied magnetic field.