In polyelectrolyte multilayer (PEM) films assembled from poly(diallyldimethylammonium chloride) and poly(styrene sulfonate) via the layer-by-layer deposition technique, the counterions were exchanged with silver ions, which were subsequently reduced in situ to produce silver (Ag) nanoparticles. The Ag nanoparticles embedded in the PEMs were found to undergo an interesting coarsening process over time, through which smaller Ag nanoparticles coalesce into larger ones until reaching an equilibrium. The process was investigated by monitoring the localized surface plasmon resonance of the Ag nanoparticles using UV-vis extinction spectroscopy, and the spectral evolution revealed an increase in nanoparticle size with time, a trend in qualitative agreement with theoretical calculation and further confirmed by transmission electron microscopy. The kinetics of the coarsening process and the size of Ag nanoparticles at equilibrium were found to be affected by the PEM structure as well as the temperature and relative humidity the PEM was exposed to, and coalescence was identified to be the mechanism.