Using hydrothermal method, Fe3O4/graphene nanocomposite is prepared by synthesizing Fe3O4 particles in graphene. The synthesized Fe3O4 is nano-sized sphere particles (100-200 nm) and uniformly distributed on the planes of graphene. Fe3O4/graphene nanocomposite as anode material for lithium ion batteries shows high reversible specific capacity of 771 mAh g−1 at 50th cycle and good rate capability. The excellent electrochemical performance of the nanocomposite can be attributed to the high surface area and good electronic conductivity of graphene. Due to the high surface area, graphene can prevent Fe3O4 nanoparticles from aggregating and provide enough space to buffer the volume change during the Li insertion/extraction processes in Fe3O4 nanoparticles.