Silver nanoparticle/bismuth oxide composite films were deposited by cosputtering and annealed at different temperatures. The X-ray diffraction results demonstrate that the silver and bismuth oxide were well crystallized after 600 degrees C thermal annealing. The linear absorption peaks show a red-shift behavior while increasing annealing temperature. The annealing effect of the third-order nonlinear optical susceptibilities and ultrafast nonlinear optical response of the silver nanoparticles/bismuth oxide composite thin films are investigated using the femtosecond time-resolved optical Kerr effect technique under 800 nm wavelength. The maximum value of chi(3) of Ag:Bi2O3 thin films is 2.1X10 esu, which occurs at an annealing temperature of 600 degrees C. The ultrafast optical response spectra demonstrate the temperature dependence of decay process time.