Hydrosol of Au nanoparticles was prepared by citrate reduction of chloroauric acid. The synthesized nanoparticles were characterized through transmission electron microscopy (TEM) and UV–Visible spectroscopy. The prepared nanoparticles were almost spherical in shape with their mean diameter ∼6 nm and possessed face-centred-cubic (fcc) structure. The absorption spectrum of the as-prepared nanoparticles shows the SPR peak at 530 nm in agreement with that predicted from calculations based on Mie theory. These nanoparticles were dispersed in poly(vinyl alcohol) (PVA) using the sol–gel method to prepare PVA–Au nanocomposite films with different concentrations of Au. Optical and structural properties of these nanocomposites were studied using UV–Visible spectroscopy, x-ray diffraction (XRD) and FTIR spectroscopy. The value of optical band gap deduced from the UV–Visible absorption spectroscopy is found to be reduced from 4.98 eV (for pure PVA) to 3.85 eV after embedding 0.074 wt% of Au nanoparticles. Further, the refractive index behaviour for pure PVA and PVA–Au nanocomposite films was studied through transmission and reflection behaviour. The induced structural changes, revealed through XRD and FTIR spectroscopy, are responsible for the observed changes in optical behaviour of PVA after embedding Au nanoparticles in it.