The imaginary part of the third-order nonlinear optical susceptibility (Imχ ( 3 ) ) and the response time of Au nanoparticle-insulator composites with various concentrations of nanoparticles (NPs) have been investigated by femtosecond pump and probe spectroscopy. Au-NP composite films have been fabricated by depositing NP coated by insulating materials, and the volume fraction of NPs p was varied between 0.02 and 0.66. Imχ ( 3 ) from the surface plasmon resonance increases with p up to 0.34, and decreases for p>0.39. We have observed an enhancement of Imχ ( 3 ) from the interaction between NPs for p<0.39 which is in addition to the enhancement from the local-field effect of the Au NP-insulator composite system. The decrease of Imχ ( 3 ) for p>0.39 is attributed to the suppression of the local-field effect associated with the tunneling of conduction electrons between adjacent NPs. The response time is independent of p over the range 0.05-0.66, because photoexcited electrons in an NP relax by interaction with phonons within the NP.