In the present work, effects of annealing temperature on structural and optical properties of silver-glass nanocomposites synthesized by the combined use of ion-exchange and subsequent thermal annealing in air have been investigated using Transmission electron microscopy (TEM), UV–Visible absorption spectroscopy and Photoluminescence spectroscopy. The appearance of SPR peak characteristic of silver nanoparticle formation around 429 nm in absorption spectra of silver-glass nanocomposite samples indicates towards the formation of silver nanoparticles in glass. The size of silver nanoparticles has been found to increase with increase in annealing temperature. At an annealing temperature of 200°C the size of silver nanoparticles comes out to be 2.31 nm which increases to a value of 7.60 nm at an annealing temperature of 550°C. TEM investigation indicates that silver nanoparticles of size 6.57+1.14 nm are formed in glass matrix. UV-visible absorption and reflection data has been analyzed to ascertain optical properties such as absorption coefficient (α), refractive index (n) and dielectric constant (ε). Emissions bands in the photoluminescence spectra were analyzed to investigate different oxidation states of silver present in the prepared nanocomposite samples. Formation of Ago atoms from Ag + ions are responsible for the quenching of photoluminescence intensity at higher temperature. Such nanocomposites are expected to be promising materials for ultrafast optical switches and for sensing applications.