Goethite is an important iron-bearing mineral found in nearly all types of soils and sediments that typically occurs as particles of nanoscale crystallites. Here we show that poorly crystalline nanophase goethite can undergo dehydroxylation and alteration to produce strongly magnetic Fe-oxide nanoparticles. After moderate reductive heating, synthetic oriented aggregates of nanogoethite were converted to stoichiometric sub-micron magnetite. In contrast, oxidative heating produced only nanocrystalline hematite. We present a novel characterization of the products of nanogoethite alteration, which represents an important pathway for the production of both superparamagnetic and stable single-domain magnetic particles in a wide variety of sedimentary environments, including soils and lacustrine and marine settings in which goethite is commonly present. In nature, the mechanism of magnetite formation observed in our experiments could contribute to the widespread phenomenon of magnetic enhancement in many soil types, and could be responsible for secondary magnetizations often observed to accompany diagenesis in sedimentary rocks. Thus, nanogoethite may be an important precursor of fine magnetic particles and magnetic remanence carriers in the environment, particularly in soils and catchment areas affected by wildfire as well as in sediments subjected to deep burial diagenesis and low-grade metamorphism.