Composites of nanometer-sized metal particles within a dielectric medium have attracted a lot of attention in recent years because of interesting properties exhibited by them. Quantum confinement effect tend to dominate the properties of carriers within the particles having nanoscale dimensions. Nanocomposites have been prepared by simple chemical methods. Optical absorption data when analyzed with Mie's scattering formula give results which indicate a metal-insulator type transition in the case of silver particles having diameters around 3nm. Heterostructure quantum dots involving Ag 2 O nanoparticles with a thin shell of metallic silver show unusual optical absorption spectra again arising due to a confinement effect. Composites consisting of the ferroelectric phase BaTiO 3 and nanosized nickel or silver, in a gel medium show a large increase in the value of dielectric permittivity. This is explained as resulting from a quantum size effect. © 2001 Elsevier Science B.V. All rights reserved.