The influence of grain size on the sensitivity of indium oxide with extremely small grains in range of 7–40 nm to nitrogen dioxide in low concentration at room temperature is investigated under the UV illumination. It is found that the sample with the intermediate size of nanocrystals shows the greatest response to nitrogen dioxide. The possibility of using nanocrystalline In2O3 to create a sensor for detecting NO2 in air at room temperature under UV illumination is demonstrated. It is shown that pulsed illumination may be used for NO2 detection at room temperature that significantly reduces the sensor power consumption.