The microstructure and magnetoresistance of as-prepared and annealed Cu-Co alloy films were investigated to explore the origin of giant magnetoresistance and to examine the development of new magnetic materials. The Cu matrix in as-prepared Cu-Co film consists of small grains that are less than 20 nm in diameter. The Co atoms are dissolved in Cu. For alloy films with a Co concentration below 35%, the magnetoresistance ratio increases with higher Co concentrations. Magnetoresistance then decreases for films containing more than 35% Co. After annealing at 400 degrees C for 1 h, Cu grains increase from 20 to 50 nm in diameter. The Co grains precipitate along the grain boundary, which has a maximum size of approximately 20 nm in diameter. Magnetoresistance decreases according to Co grain growth.