Nanocomposite Zr 0.52 Al 0.48 N 1.11 thin films consisting of crystalline grains surrounded by an amorphous matrix were deposited using cathodic arc evaporation. The structure evolution after annealing of the films was studied using high-energy x-ray scattering and transmission electron microscopy. The mechanical properties were characterized by nanoindentation on as-deposited and annealed films. After annealing in temperatures of 1050-1400°C, nucleation and grain growth of cubic ZrN takes place in the film. This increases the hardness, which reaches a maximum, while parts of the film remain amorphous. Grain growth of the hexagonal AlN phase occurs above 1300°C.