Films of composition 0.27 PbO, 0.24 ZrO2, 0.27 TiO2, 0.22 NiO, and containing micrometer sized lead zirconate titanate (PZT) crystallites and nanometer sized nickel particles have been synthesized by a sol‐gel technique. Metal particles have diameters in the range 2.0–7.6 nm. The films exhibit values of dielectric constant in the range 220–410 at a frequency of 1 kHz at room temperature. The optical absorption coefficient of the films shows a peak at ∼400 nm. The peak position shifts to higher wavelengths as the metal particle size is increased. The Mie theory is used to explain the results. © 1995 American Institute of Physics.