A SiO2 film containing In0.2Ga0.8As nanocrystals with size of about 3 nm was prepared by a radio frequency (r.f.) magnetron co-sputtering technique. The microstructure of the film was characterized by X-ray diffraction, Raman spectra and transmission electron microscopy. Linear optical absorption was measured and discussed by an effective mass model. Non-linear optical absorption and non-linear optical refraction were investigated by a Z-scan technique using a single Gaussian beam of a He-Ne laser (632.8 nm). An enhanced third-order nonlinear optical absorption coefficient and non-linear optical refractive index were achieved in the composite film and measured to be 0.67 cm/W and -2.7 x 10(-6) cm(2)/W. respectively.