Au-YSZ nanocomposite films exhibited a surface plasmon resonance absorption band around 600 nm that underwent a reversible blue shift and narrowed upon exposure to CO in air at 500 degrees C. A linear dependence of the sensing signal was observed for CO concentrations ranging between 0.1 and 1 vol % in an air carrier gas. This behavior of the SPR band, upon exposure to CO, was not observed when using nitrogen as the carrier gas, indicating an oxygen-dependent reaction mechanism. Additionally, the SPR band showed no measurable signal change upon exposure to CO at temperatures below similar to 400 degrees C. The oxygen and temperature dependent characteristics, coupled with the oxygen ion formation and conduction properties of the YSZ matrix, are indicative of charge-transfer reactions occurring at the three-phase boundary region between oxygen, Au, and YSZ, which result in charge transfer into the Au nanoparticles. These reactions are associated with the oxidation of CO and a corresponding reduction of the YSZ matrix. The chemical-reaction-induced charge injection into the Au nanoparticles results in the observed blue shift and narrowing of the SPR band.