Configurations of composite metal oxide nanoparticles are typically far off their thermodynamic equilibrium state. As such they represent a versatile but so far overlooked source material for the intergranular solid-state chemistry inside ceramics. Here, it is demonstrated how the admixture of Fe3+ and In3+ ions to MgO nanoparticles, as achieved by flame spray pyrolysis, can be used to engage ion exsolution, phase separation, and subsequent spinel formation inside the network of diamagnetic and insulating MgO grains. Extremely high uniformity in the distribution of intergranular ferrimagnetic MgFe2O4 films and grains with resulting magnetic coercivity values that depend on the nanoparticles' initial Fe3+ concentration is achieved. Moreover, percolating networks of semiconducting MgIn2O4 are derived from MgO nanoparticles with admixtures of 20 at% In3+ that gives rise to an enhancement of dc conductivity values by more than five orders of magnitude in comparison to the insulating MgO host. The here presented approach is general and applicable to the synthesis of a variety of functional spinel nanostructures embedded inside ceramic matrices. Nanoparticle loading with aliovalent impurity ions, the level of nanoparticle powder density after compaction, and sintering temperature are key parameters for this novel type of solid-state chemistry in between the host grains.