Water soluble Gd-based endohedral metallofullerenes (Gd@C82(OH)x, Gd@C60(OH)x, and Gd@C60[C(COOH)10]) have been studied extensively as a result of their novel electronic and structural properties. These Gd-based metallofullerenes are regarded as a possible new generation of magnetic resonance imaging (MRI) contrast agents not only because of their excellent proton relaxivities (which are greater than commercially-available MRI contrast agents) but also because they may serve as a safer alternative. The toxic Gd ions are off-center and completely encaged inside the fullerenes (see figure) and appear to be inhibited from dissociation and oxidation under physiological conditions and the cytotoxicity of water-soluble fullerene species, particularly C60, can be controlled by surface derivatization. The electronic structure of Gd@C60 shows that Gd 4f states exhibit enhanced correlation energies. These correlation energies have values larger than normally observed in metallic gadolinium and gadolinium compounds due to the diminished screening. Also, this is a rather unusual and interesting "nanomolecular" system where there are likely strong electric dipole and magnetic dipole interactions. This research is supported by the National Science Foundation, Division of Materials Research, Materials Research Science and Engineering Program, Grant 0213808.