Thin films of aluminum nitride (AlN) have been grown on silicon, and sapphire substrates, using a filtered cathodic arc deposition process. The process parameter, viz., gas pressure and substrate temperature were varied in order to investigate their influence on the microstructural and optical properties. The as-grown films have been characterized by transmission electron microscopy, auger electron spectroscopy, optical microscopy and UV visible spectroscopy. Smooth, stoichiometric films having nanocrystalline AlN grains were grown. In this paper, the microstructural and optical properties have been correlated with the deposition conditions.