Results of photoluminescence and photoconductivity measurements in In x Ga 1−x N epitaxial films are presented. The photoluminescence peak energy and intensity show several anomalous behaviours. The peak energy changes with temperature exhibiting an inverted S-shape dependence, where it decreases, then increases with increasing temperature in the range 40-100 K and finally decreases with increasing temperature. The intensity shows a temperature dependence similar to that of amorphous semiconductors and disordered superlattices. A blue shift of the photoluminescence energy with increasing excitation intensity is observed. A large Stokes shift between the photoluminescence peak position and the band edge transition energy is found; it decreases with decreasing indium content. A persistent photoconductivity effect has been detected up to room temperature with a stretched-exponential function for its decay rate. All these observations can be explained in a consistent way by alloy potential fluctuations, and these clearly indicate the existence of compositional fluctuations. These two related effects thus appear to constitute the mechanism for the widely observed localized excitons in InGaN-based devices.