Au-YSZ nanocomposite films exhibited a surface plasmon resonance absorption band around 600 nm that underwent a reversible blue shift and narrowed upon exposure to CO in air at 500 degrees C. A linear dependence of the sensing signal was observed for CO concentrations ranging between 0.1 and 1 vol % in an air carrier gas. This behavior of the SPR band, upon exposure to CO, was not observed when using nitrogen as the carrier gas, indicating an oxygen-dependent reaction mechanism. Additionally, the SPR band showed no measurable signal change upon exposure to CO at temperatures below approximately 400 degrees C. The oxygen and temperature-dependent characteristics, coupled with the oxygen ion formation and conduction properties of the YSZ matrix, are indicative of charge-transfer reactions occurring at the three-phase boundary region between oxygen, Au, and YSZ, which result in charge transfer into the Au nanoparticles. These reactions are associated with the oxidation of CO and a corresponding reduction of the YSZ matrix. The chemical-reaction-induced charge injection into the Au nanoparticles results in the observed blue shift and narrowing of the SPR band.