The effect of nitriding on the carbonyl iron powder is characterized by XRD，SEM and vibrating sample magnetometer.With the nitride iron powder，a MR fluid with the excellent performance has been prepared through adding in thixotropic agent of organobentonite and polymeric surfactant. The magnetic properties，rheological properties，antisedimentation and aggregation stability，temperature stability，tribology properties and damping properties of MR fluid has been studied. The properties are listed as follows：shear stresses is more than 60 kPa(B=0.5 T)，off state viscosity is less then 1.0 Pa·s， and the three months settling rate is less than 10% and no hardening，easy redispersion. Temperature ranges from 20 to 125 ℃，and the maximum decay rate of the damping force is less then 14.3%.