We report the observation of the photorefractive effect in an organic-inorganic polymer composite photosensitized with nanosized cadmium sulfide particles, the surface of which is passivated utilizing p-thiocresol. The semiconductor nanoparticles are dispersed in a poly(M-vinylcarbazole) (PVK) polymer matrix that also acts as the charge-transport species. The ability of these particles to behave as the photosensitizer in a PVK matrix has been characterized through a de photoconductivity experiment. In addition, for the photorefractive experiments, the second-order optically nonlinear chromophore 4-nitrophenyl-L-prolinol is also doped into the PVK matrix to elicit electro-optic response. Tricresyl phosphate is used to lower the glass-transition temperature of the material, allowing for room temperature in situ poling of the sample. In addition to the electric field dependence of the degenerate four-wave mixing diffraction efficiency, the photorefractive nature of the grating is confirmed via two-wave mixing asymmetric energy transfer. The paper also discusses briefly the methods employed in the syntheses of the capped CdS nanoparticles used in this study, which include the reverse micelle approach as well as competitive reaction chemistry. The resulting particles have been characterized using UV-vis absorption and X-ray diffraction.