This paper describes synthesis of polypyrrole-silver nanocomposite (PPy-Ag-NC) via in situ chemical oxidative polymerization of pyrrole, based on colloidal suspension of silver nanoparticles. The structure analysis of synthesized nanocomposite was done by Fourier transform infrared (FTIR) spectroscopy. Transmission electron microscopy (TEM) micrographs showed spherical Ag nanoparticles of about 38-60 nm were embedded in the PPy matrix. Scanning Electron Microscopy (SEM) photo graphs revealed formation of uniform granular morphology. X-ray diffraction (XRD) pattern shows broad peak at 2 = 25.3o suggesting that PPy is amorphous, but peaks at 2θ values of 38.2°, 44.5°, 64.3° and 78.4° corresponding to face centered cubic silver. Room temperature ammonia gas sensing behaviour of PPy-Ag nanocomposite films were examined. Gas sensing tests demonstrated that the composite films exhibited a fast response (58s to 153s), rapid recovery (347s to 746s) and high sensitivity and sensitivity at room temperature with a detection of low concentration (50 to 500 ppm) of ammonia gas. The experimental result demonstrates the potential of using PPy-Ag nanocomposite as sensing material for the fabrication of room temperature operating ammonia sensor.