In this paper, we describe a unique strategy for preparing discrete composite nanoparticles consisting of a large gold core (60-150 nm in diameter) surrounded by a thermally responsive nontoxic hydrogel polymer derived from the polymerization of N-isopropylacrylamide (NIPAM) or a mixture of NIPAM and acrylic acid. We synthesize these composite nanoparticles at room temperature by inducing the growth of gold nanoparticles in the presence of preformed spherical hydrogel particles. This new method allows precise control of the size of the encapsulated gold cores (tunable between 60 and 150 nm) and affords composite nanoparticles possessing diameters ranging from as small as 200 nm to as large as 550 nm. Variable-temperature studies show that the hydrodynamic diameter of these composite nanoparticles shrinks dramatically when the temperature is increased above the lower critical solution temperature (LCST); correspondingly, when the temperature is lowered below the LCST, the hydrodynamic diameter expands to its original size. These composite nanoparticles are being targeted for use as optically modulated drug-delivery vehicles that undergo volume changes upon exposure to light absorbed by the gold nanoparticle core.