The relationship between the microstructure and the magnetic properties of heterogeneous Cu-Co [Cu92.5-Co7.5] (at.%) thin films prepared by electrodeposition was studied. Electron spectroscopic imaging (ESI) studies clearly revealed the evolution of the cobalt microstructure as a function of thermal treatments. The as-deposited film is composed of more than one phase; metastable Cu-Co, copper and cobalt. During annealing the metastable phase decomposes into two fcc phases; Cu and Co. Grain growth occurs with increasing annealing duration, such that the cobalt grains are more homogeneously distributed in the copper matrix. A maximum GMR effect was found after annealing at 450degreesC for 1.5 h, which corresponds to an average cobalt grain size of 5.5 nm according to magnetization characterization. A significant fraction of the cobalt in the Cu-Co film did not contribute to the GMR effect, due to interactions between the different magnetic grains and large ferromagnetic (FM) grains. The percolation threshold of cobalt in metastable Cu-Co alloys formed by electrodeposition is lower (less than similar to7.5 at.%) than that prepared by physical deposition methods (similar to35 at.%). (C) 2004 Kluwer Academic Publishers.