Precursor solutions of cobalt/nickel incorporated nano-grain zirconia films were prepared from aquo-organic solutions of zirconium oxychloride octahydrate and corresponding transition metal nitrate. The films were deposited onto silica glass substrate by the dipping technique. Annealing was made at different temperatures from 450°C to 1200°C ± 5°C in air atmosphere. The range of thickness of the films baked at 450°C was 1800–1870 å. For cobalt system Co3O4 was formed initially at 450°C which gradually transformed to alpha cobalt and next to cubic cobalt along with a non-stoichiometric compound (Zr0.71Co0.23O0.06) with increasing annealing temperature. On the other hand, for nickel system nickel metal of nano-size was observed in the nano-grain zirconia film matrix at 450°C. By increasing annealing temperature to 1200°C, a compound, ZrNi4O, was formed which was found to be stable for ∼ 30 days.