First of all, let me just say that I find the 3.x concept of “cold iron” as some kind of rare, mystical material totally separate from the ordinary metal. On the other hand, I do rather like the idea of iron having some kind of power to defeat the supernatural. In the mythology of a setting I’m working on, ancient men were able to oppose the sorceries of the elves with the first iron weapons, while the dwarven resistance to and inability to wield magic is attributed to the gods fashioning them with iron hearts.
That said, I’m not entirely sure how to represent this property in-game. The idea I’ve had that I’m happiest with is that non-dwarf characters get no saving throw against spells, staves, or wands if they don’t have any iron on their person. This would be mostly a cosmetic matter, since an iron belt-buckle or an iron nail in a person’s pocket would do the trick, and most monsters could be more resistant to spells by virtue of being to some degree inherently magical.
I also like the idea that, since iron is a magically “dead” material, magical weapons and armor must be made from other materials, like bronze or some more exotic metal or alloy. This would have the effect of making magical arms and armor quite distinctive-looking in an otherwise iron age society.