Sensor technologies that can operate under extreme conditions including high temperatures, high pressures, highly reducing and oxidizing environments, and corrosive gases are needed for process monitoring and control in advanced fossil energy applications. Sensor technologies based on optical waveguide-based techniques are highly attractive for passive, embedded, and remote sensing. A critical enabling technology for optical waveguide sensors is the development of advanced optical thin film coatings which have a desired set of optical properties that change in a rapid, selective, and sensitive manner to a particular quantity of interest. TiO2 and Au nanoparticle incorporated TiO2 nanocomposite thin films were prepared through sol-gel deposition techniques and their respective optical responses to a 4% H2/N2 mixture were investigated in the visible / near-IR range of 400–1000 nm. A tendency for Au nanoparticles to occupy special sites on the TiO2 microstructure, such as grain boundaries, twin boundaries, and triple points is rationalized in terms of basic surface energy arguments. The Au / TiO2 nanocomposite films showed a useful optical response due to a reversible, rapid, and repeatable shift in the localized surface plasma resonance peak of Au nanoparticles at a temperature of 650 °C and 850 °C. In contrast, high temperature exposure of TiO2 films to reducing gases at 850 °C resulted in the growth of abnormally large grains or “hillocks” that protruded from the sample surface and resulted in light scattering and an irreversible decrease in transmission at short wavelengths. The origin of the observed optical response of Au / TiO2 nanocomposite films is discussed in the context of work by prior investigators in the Au / yttria-stabilized Zirconia (YSZ) system and needs for future research in this area is highlighted.