A series of different Ag atomic percentages upto 15% in a nanocry stalline ZnO has been prepared using r.f. magnetic plasma cosputtering apparatus. The microstructure of as-sputtered pure ZnO consisted of small but well defined 5-10nm grains with a hexagonal wurtzite crystal structure. In as-sputtered Ag/ZnO thin films, it was difficult to identify the Ag particles and alos the ZnO grain boundaries were not well defined. However, the grain of ZnO was identified again as 5-10nm. In annealed Ag/ZnO thin films at $400^{circ}C$ unddr a vacuum of less than $10^-6$ torr for 1 hr, 5-19nm sized Ag grains were identified with optical diffractograms from different points in the microstructural lattice images. Multiple twinned Ag particles were often present in the large 30-50nm sized Ag particles. The grain of ZnO was still about 5-10nm. The X-ray diffratograms showed the pure ZnO films have a preferred orientation with the c axis perpendicular and the (002) basal palnes parallel to the substrate. The preferred orientation of ZnO in the Ag/ZnO films changes sharply from (002) to (110) parallel to the substrate with increasing Ag content.