Nanocomposite thin films containing In2O3 nanoparticles were prepared by the target-attachment sputtering utilizing the InN pellets and allowing the N2 inlet gas flow during the deposition process. The x-ray photoelectron spectroscopy revealed that the chemical composition of In2O3 nanoparticles becomes InO xNy and the SiOxNy phase forms in the matrix of nanocomposite layer. Photoluminescence analysis indicated that the dielectric confinement effect induced by the N-incorporation tends to restrain the green emission of nanocomposite layers due to the presence of surface polarization on nanoparticles. Suppression of blue emission was also observed due to the elimination of oxygen vacancies in In2O3 nanoparticles. Furthermore, the N elements might occupy the oxygen lattice sites and generate a new defect level, N O -, to induce the violet emission. Analytical results confirmed the mechanisms of green and blue emissions of the nanocomposite thin films containing In2O3 nanoparticles reported previously.