Nanostructured TiO2 thin films with highly enhanced photocatalytic activity were prepared by atom beam sputtering technique. The effects of thermal annealing on the structural, morphological and photocatalytic properties of TiO2 thin films were investigated using X-ray diffraction, atomic force microscopy, field emission scanning electron microscopy, Raman spectroscopy and UV-visible absorption spectroscopy. X-ray diffraction studies showed that the as-deposited TiO2 thin films made up of anatase TiO2 nanoparticles transformed into anatase/ rutile mixed-phase TiO2 nanoparticles upon annealing. Field emission scanning electron microscopy and atomic force microscopy studies revealed growth of TiO2 nanoparticles from 16 nm to 29 nm upon annealing at 600 o C. The photocatalytic activities of the nanostructured TiO2 thin films were studied by monitoring photocatalytic degradation of methylene blue in water. Our results showed that the as-deposited nanostructured TiO2 thin films exhibited highly enhanced photocatalytic efficiency as compared to the annealed samples. The mechanism underlying the enhanced photocatalytic activity of nanostructured TiO2 thin film is tentatively proposed.