Nanocrystalline indium oxide thin films of thickness about 100 nm have been deposited using thermal vacuum evaporation technique at room temperature on glass and quartz substrates and subsequently annealed at different temperatures (150℃, 200℃, 250℃, 300℃, 350℃, 500℃ and 700℃) for 2 hr and 4 hr in the oxygen atmosphere. Structural and optical properties of these films have been investigated by using XRD, SEM, HRTEM, AFM, UV-Visible, and photoluminescence spectroscopy. Response of gas towards the thin films is obtained. X-ray diffraction studies of deposited and annealed films show the transformation of indium into indium oxide thin films at 300℃. UV-visible and PL studies reveal the band gap of 3.7 eV. The transparency of thin films is about 83%. Gas response is obtained 3.55 for ethanol vapours. Structural features associated with the indium oxide thin films have been correlated with optical parameters.