In this paper nitrogen-doped carbon-encapsulation Fe3O4 yolk−shell magnetic nanocapsules (Fe3O4@C-N nanocapsules) have been successfully constructed though a facile hydrothermal method and subsequent annealing process. Fe3O4 nanoparticles are completely enclosed in nitrogen-doped carbon shells with void space between the nanoparticle and the shell. The yolk−shell structure allows Fe3O4 nanoparticles to expand freely without breaking the outer carbon shell during the lithiation/delithiation processes. The volume expansion of Fe3O4 results in the in-depth nanocrystallization. Fortunately, the new generated small nanoparticles can increase the capability with the cycle increase due to the unique confinement effect and excellent electronic conductivity of the nitrogen-doped carbon shells. Hence, after 150 cycles, the discharge capacity of Fe3O4@C-N-700 nanocapsules still remained 832 mA h g−1 at 500 mA g−1, which corresponds to 116.7% of the lowest capacity (713 mA h g−1) at the 16th cycle. We believe that the yolk−shell structure is conducive to enhance the capacity of easy pulverization metal oxidation during the charge/discharge processes.