We report synthesis of nanosize LiFePO4 and C-LiFePO4 powders with a narrow particle size distribution (20–30 nm) by ethanol-based sol–gel method using lauric acid (LA) as a surfactant for high specific capacity lithium-ion battery cathode material. X-ray diffraction measurements demonstrated that the samples were single-phase materials without any impurity phases. The average crystallite size was found to decrease slightly from 29 nm to approximately 23 nm with carbon coating. The ratio of the Raman D-band (∼1350 cm−1) to G-band (∼1590 cm−1) intensities (ID/IG) and electronic conductivity of these materials show strong dependence on the amount of surfactant coverage. Remarkably, cell prepared with carbon-coated LiFePO4 synthesized using 0.25 M solution of LA showed a very large specific capacity approaching the theoretical limit of 170 mAh/g, in stark contrast to the specific capacity of cell consisting of pure of LiFePO4 (∼75 mAh/g) measured at the same C/2 discharge rate.