A microstructure deformation of indium oxide (In2O3) nanoparticles by an in situ thermal radiation treatment in nitrous oxide plasma was investigated. The In2O3 nanoparticles were completely transformed into nanostructured In2O3 films upon 10 min of treatment time. The treated In2O3 nanoparticle sample showed improvement in crystallinity while maintaining a large surface area of nanostructure morphology. The direct transition optical absorption at higher photon energy and the electrical conductivity of the In2O3 nanoparticles were significantly enhanced by the treatment.