The time dependent density functional method for the calculation of optical properties of metallic nanoshells is extended to include the combined influence of a dielectric core and a dielectric embedding medium. The coupling between the polarization charges at the inner and outer surfaces of the shell is found to strongly influence the position of the plasmon resonances. The method is applied to gold nanoshells with gold sulfide cores in water for two different diameters, and the energies of the calculated plasmon resonances are found to be in good agreement with experimental measurements. (C) 2002 Elsevier Science B.V. All rights reserved.