Nanocomposite films consisting of gold nanoparticles embedded in an yttria stabilized zirconia (YSZ) matrix were synthesized at room temperature by radio-frequency co-sputtering from YSZ and Au targets at a 5 mTorr working pressure. The films were subsequently annealed for 2 h in 1 atm argon, with the annealing temperature varied from 600 to 1000 °C in steps of 100 °C. The composition, microstructure, and optical properties of the films were characterized as a function of annealing temperature by Rutherford backscattering spectrometry, scanning electron microscopy, Auger electron spectroscopy, x-ray diffraction, and absorption spectroscopy. An optical absorption band due to the surface plasmon resonance (SPR) of the Au nanoparticles was observed around a wavelength of 600 nm. Furthermore, the SPR band full width at half-maximum exhibited an inverse linear dependence on the radius of the Au nanoparticle, with a slope parameter A = 0.18, indicating a weak interaction between the YSZ matrix and the Au nanoparticles. The experimentally observed SPR dependence on nanoparticle size is discussed within the context of the Mie theory and its size-dependent optical constants.