Several Co–Al–O alloy thin films with different physical properties were prepared by reactive r.f. sputtering of Co85Al15 and Co70Al30 alloy targets in Ar + O2 atmospheres and were characterized by XPS, x‐ray diffraction (XRD) and electron probe microanalysis (EPMA). The alloy films contained metallic Co, mainly of hexagonal phase, and also CoO. The Al oxide in the Co–Al–O thin films did not give any detectable diffraction peaks. The EPMA results showed that [Al]/([Co] + [Al]) ratios, where [M] denotes molar fraction of element M in the alloy, were almost the same as the compositions of the targets used for sputtering. However, quantitative XPS analysis resulted in much higher values of [Al]/([Co] + [Al]) ratios in comparison with the bulk values, suggesting enrichment of Al in the surface region. Aluminium detected by XPS was all in the oxidized state, and was in the form of hydroxide in the top surface region. Cobalt in the topmost region was in the form of oxyhydroxide, which was easily reduced to the metallic state by Ar+ etching. By taking the XPS, XRD and EPMA results into consideration, the difference of Co–Al–O alloys in electric resistance was explained qualitatively by the difference in microstructure of the alloy films, i.e. the difference in thickness of the oxide films on nanoscale particles of metallic Co embedded in an oxidized Al matrix together with the clearance between the nanoscale Co particles. Copyright © 1999 John Wiley & Sons, Ltd.