Nanocrystalline CdS thin layers can be prepared using the ion layer gas reaction (ILGAR), a low-cost deposition technique for compound semiconductor thin films. We investigated the layers by optical spectroscopy and transmission electron microscopy, and found that lower CdCl2 precursor concentrations and thicker films favor larger nanoparticles and a lower band gap energy, whereby the concentration effect is more pronounced. The nucleation mechanism of the CdCl2 precursor seems to determine the particle size and the probability of its growth. A minimum CdS particle diameter of 4.7 nm has been extrapolated, which corresponds to an optical band gap energy of 2.83 eV, as a result of quantum confinement. ILGAR enables deposition of nanoparticles of controlled size. (C) 2002 American Institute of Physics.