Nanoparticles are considered potential candidates for a new class of magnetic resonance imaging (MRI) contrast agents. Negative MRI contrast agents require high magnetic moments. However, if nanoparticles can exclusively induce transverse water proton spin relaxation with negligible induction of longitudinal water proton spin relaxation, they may provide negative contrast MR images despite having low magnetic moments, thus acting as an efficient T2 MRI contrast agent. In this study, carbon-coated paramagnetic dysprosium oxide (DYO@C) nanoparticles (core = DYO = DyxOy; shell = carbon) were synthesized to explore their potential as an efficient T2 MRI contrast agent at 3.0 T MR field. Since the core DYO nanoparticles have an appreciable (but not high) magnetic moment that arises from fast 4f-electrons of Dy(III) (6H15/2), the DYO@C nanoparticles exhibited an appreciable transverse water proton spin relaxivity (r2) with a negligible longitudinal water proton spin relaxivity (r1). Consequently, they acted as a very efficient T2 MRI contrast agent, as proven from negative contrast enhancements seen in the in vivo T2 MR images.