The synthesis and binding properties of squaramide-coated Fe₃O₄ nanoparticles upon coordination with heavy metals in water are described. The nanoparticles feature selective binding towards Hg²⁺ and Pb²⁺ cations in the presence of other interfering heavy metals. The binding affinity of the nanoparticles is especially high for mercury and lead cations. The mode of action of the squaramide-coated nanoparticles differs significantly from that of previously reported nanoparticles used as Hg²⁺ scavengers. The selective Hg²⁺ sequestering capabilities displayed by the squaramide-coated nanoparticles are related to the formation of organomercury compounds. The solid state structure of the organomercury complex obtained by treatment of a di-squaramide with Hg²⁺ salts is described, demonstrating the mercuriation of the aryl moiety of dopamine.