Ultrasmall nanoparticles (NPs) with a high active surface area are essential for optoelectronic and photovoltaic applications. However, the structural stability and sustainability of these ultrasmall NPs at higher temperatures remain a critical problem. Here, we have synthesized the nanocomposites (NCs) of Ag NPs inside the silica matrix using the atom beam co-sputtering technique. The post-deposition growth of the embedded Ag NPs is systematically investigated at a wide range of annealing temperatures (ATs). A novel, fast, and effective procedure, correlating the experimental (UV-vis absorption results) and theoretical (quantum mechanical modeling, QMM) results, is used to estimate the size of NPs. The QMM-based simulation, employed for this work, is found to be more accurate in reproducing the absorption spectra over the classical/modified Drude model, which fails to predict the expected shift in the LSPR for ultrasmall NPs. Unlike the classical Drude model, the QMM incorporates the intraband transition of the conduction band electrons to calculate the effective dielectric function of metallic NCs, which is the major contribution of LSPR shifts for ultrasmall NPs. In this framework, a direct comparison is made between experimentally and theoretically observed LSPR peak positions, and it is observed that the size of NPs grows from 3 to 18 nm as AT increases from room temperature to 900 °C. Further, in situ grazing-incidence small- & wide-angle X-ray scattering and transmission electron microscopy measurements are employed to comprehend the growth of Ag NPs and validate the UV + QMM results. We demonstrate that, unlike chemically grown NPs, the embedded Ag NPs ensure greater stability in size and remain in an ultrasmall regime up to 800 °C, and beyond this temperature, the size of NPs increases exponentially due to dominant Ostwald ripening. Finally, a three-stage mechanism is discussed to understand the process of nucleation and growth of the silica-embedded Ag NPs.