A VARIETY of crystalline materials have now been encapsulated in nanometre-scale graphitic cages(1-8) and tubules(9-11). For magnetic materials, encapsulation should serve the dual role of protecting air-sensitive particles against degradation and reducing the magnetic coupling between individual particles, thus potentially opening the way for applications of these composite materials as ultra-high density magnetic recording media(12-13). But to realize this potential, the materials must be available in the form of thin, smooth films, with precise control of the size of the individual magnetic crystallites. Here we report the fabrication and characterization of magnetic thin films, consisting of cobalt nanocrystals encapsulated in graphite-like carbon cages, that meet these structural requirements.