The Co46Al19O35 granular thin films were prepared on glass substrates by dc reactive sputtering method with mixed gas Ar + O-2. The Co46Al19O35 granular thin films annealed at 300 degrees C for 10, 60 and 360 min. We have investigated the relationship between then microstructural change and giant magnetoresistance (GMR) in Co46Al19O35 granular films. The magnitude of GMR decreased considerably with increasing annealing time at low temperature, although the size of Co granules estimated from transmission electron microscopy (TEM) observation showed a small change. The enhancement of GMR at low temperatures in Co46Al19O35 granular thin films can be interpreted by the effect of higher order tunneling in Coulomb blockade regime. The comparison between the granule size estimated from the magnetization curves and the TEM observation has made it possible to distinguish between the geometrical size and the magnetic size of granules. Parameter fits of magnetization curves to the Langevin function suggest that large clusters consisting of several small Co granules, which are coupled ferromagnetically, are related with the decrease of GMR on annealing. (c) 2005 Elsevier B.V. All rights reserved.