Superparamagnetic nanocomposites based on gamma-Fe2O3 and sulphonated polystyrene were synthesised by ion-exchange process and the structural characterisation has been carried out using X-ray diffraction technique. Doping of cobalt in to the gamma-Fe2O3 lattice was effected in situ and the doping was varied in the atomic percentage range 1-10. The optical absorption studies show a band gap of 2.84 eV, which is blue shifted by 0.64 eV when compared to the reported values for the bulk samples (2.2 eV). This is explained on the basis of weak quantum confinement. Further size reduction can result in a strong confinement, which can yield transparent magnetic nanocomposites because of further blue shifting. The band gap gets red shifted further with the addition of cobalt in the lattice and this red shift increases with the increase in doping. The observed red shift can be attributed to the strain in the lattice caused by the anisotropy induced by the addition of cobalt. Thus, tuning of bandgap and blue shifting is aided by weak exciton confinement and further red shifting of the bandgap is assisted by cobalt doping. (c) 2005 Elsevier B.V. All rights reserved.