A series of CoxAg1-x (0x100at.%) granular films were prepared using the ion-beam cosputtering technique at different substrate temperatures. Systematic investigations have been carried out on the giant magnetoresistance (GMR) effect and characterization of microstructures of these samples. The magnetoresistance ratio depends strongly on cobalt concentration, substrate temperature, and annealing treatment. The optimal value of GMR was observed in Co22Ag78 sample prepared at the temperature of 300 K. Microstructures of as-deposited and annealed samples were characterized by structural analyses. For Co22Ag78 sample, real-time in situ observation by TEM together with FMR spectra indicates that the size and shape of cobalt granules evolve primarily along the film plane during annealing. The results of FMR also provide that the cobalt granules remain single-domain particles after annealing at temperatures up to 700 K.