Presently a wide spread of research activities is pursued in the area of theoretical, computational and experimental aspects of vibration studies in laminated composite structures with embedded or surface bonded smart layers in order to improve the performance of components in aerospace, mechanical, robotics, and electronic equipments. The key to the successful fabrication of these components with improved properties is the development of smart materials by materials engineering and understanding the fundamentals of materials science. It is in this context that we have developed a novel smart thin film processing method based upon pulsed laser deposition to process nanocrystalline materials with accurate size and interface control with improved mechanical and magnetic properties. Using this method, single domain nanocrystalline Fe and Ni particles in 5–10 nm size range embedded in amorphous as well as crystalline alumina have been produced. By controlling the size distribution in confined layers, it was possible to tune the magnetic properties from superparamagnetic to ferromagnetic in a controlled way. Magnetization measurements of these thin film composites as function of field and temperature were carried out using a superconducting quantum interference device (SQUID) magnetometer. Magnetic hysteresis characteristics below the blocking temperature are consistent with single-domain behavior. Mechanical properties were measured using nano-indentation measurements. The hardness of the Fe and Ni-Al2O3 nanocomposites was found to vary strongly with the size do Fe and Ni nanodots in the alumina matrix. For example, the hardness of Fe-Al2O3 system increased from 15 GPa to 28 GPa when the size of Fe dots in alumina was increased from 5 nm to 9 nm. It is envisioned that this types of smart films can be used in magnetic recording, ferrofluid technology, magnetocaloric refrigeration, biomedicine, biotechnology, aerospace applications where hard and wear-resistant coatings are also very important for its survival.