Random telegraph noise (RTN) is often considered a nuisance or, more critically, a key reliability challenge for miniaturized semiconductor devices. However, this picture is gradually changing as recent works have shown emerging applications based on the inherent randomness of the RTN signals in state-of-the-art technologies, including true random number generator and IoT hardware security. Suitable material platforms and device architectures are now actively explored to bring these technologies from an embryonic stage to practical application. A key challenge is to devise material systems, which can be reliably used for the deterministic creation of localized defects to be used for RTN generation. Toward this goal, we have investigated RTN in Au nanocrystal (Au-NC) embedded HfO 2 stacks at the nanoscale by combining conduction atomic force microscopy defect spectroscopy and a statistical factorial hidden Markov model analysis. With a voltage applied across the stack, there is an enhanced asymmetric electric field surrounding the Au-NC. This in turn leads to the preferential generation of atomic defects in the HfO 2 near the Au-NC when voltage is applied to the stack to induce dielectric breakdown. Since RTN arises from various electrostatic interactions between closely spaced atomic defects, the Au-NC HfO 2 material system exhibits an intrinsic ability to generate RTN signals. Our results also highlight that the spatial confinement of multiple defects and the resulting electrostatic interactions between the defects provides a dynamic environment leading to many complex RTN patterns in addition to the presence of the standard two-level RTN signals. The insights obtained at the nanoscale are useful to optimize metal nanocrystal embedded high-κ stacks and circuits for on-demand generation of RTN for emerging random number applications.