The magnetic liquid known as ferrofluid is a liquid, acts as a smart material, which becomes strongly magnetized in the presence of a magnetic field. The aim of this work to develop standard, economical method for synthesis of iron oxide nanoparticles along with their coating with oleic acid resulting in good quality of stable ferrofluid. The authors have prepared ferrofluid where nanoparticles are suspended in kerosene. To avoid aggregation, nanoparticles are coated with oleic acid. In present work, the stability of ferrofluid is considered in terms of particle size, size distribution and magnetization. The properties of final fluid are studied with the help of various analytical techniques; X-ray diffraction (XRD), Transmission electron microscopy (TEM), Fourier transform infrared spectroscopy (FTIR) which are used for the determination of characteristics of ferrofluid like interatomic distance, size and shape of the particles and adhesion of oleic acid to nanoparticles. In account of synthesized ferrofluid, remaining part of work is dedicated to application of ferrofluid in the inclination sensor. In present there are many commercial applications of ferrofluids such as cancer detection (MRI test), speakers etc. Here the focus is given to construct ferrofluid based inductive inclination sensor as one of the application of the ferrofluid. The range of inclination sensor developed by us is +/- 12 degrees and the resolution is approximate to +/- 0.5 degrees.