We have investigated the relationship between the microstructural change and giant magnetoresistance of insulating Co-Al-O granular films as a function of the annealing time. The temperature dependence of electrical resistivity (p) showed the tunneling behavior for all the annealed samples. The magnetoresistance (MR) decreased largely with increasing annealing time, although the size of Co granules estimated from transmission electron microscopy (TEM) observation showed a small change. The comparison between the granule size estimated from the magnetization curves and the TEM observation has made it possible to distinguish between the geometrical size and the magnetic size of the granules. Parameter fits of magnetization curves to the Langevin function suggest that large clusters consisting of several small, ferromagnetically-coupled Co granules result from the decrease of MR on annealing. (c) 2006 Elsevier B.V All rights reserved.