As a first step to challenge the fabrication of highly O2-permeable Ag membranes, thin films of nanocrystalline Ag–Cu–Al alloys with densely dispersed Al2O3 particles were successfully prepared via reactive sputtering using Ar–O2 mixed gas. The effect of O2 partial pressure on the thin film structure during sputtering was investigated. A critical O2 partial pressure was required to obtain a nanocrystalline structure via simultaneous internal oxidation during sputtering. The critical condition was correlated with the flux ratio of O2 to Al impinging on the Ag film surface and the stoichiometric ratio of O to Al in Al2O3.