Present study reveals an impact of annealing on the crystallization of InSe matrix in PbTe–InSe multilayer nanocomposite structures prepared using thermal evaporation technique. Cross sectional transmission electron microscopic image clearly shows that the PbTe nanocrystals (NCs) are embedded in InSe matrix layer. Atomic force microscopic analysis gives detailed surface morphology of single PbTe NCs layer on InSe matrix surface. The growth of PbTe NCs with elongated surface morphology was observed upon annealing and correlated with Ostwald ripening. The evaluation of amorphous to crystalline phase transformation corresponding to InSe was observed from X-ray diffraction upon annealing. The shift in optical absorption spectra attribute three dimensional quantum confinement effect of PbTe NCs embedded in InSe matrix and have compared with the theoretical predictions of Efros effective approximation model. The photoluminescence emission associated with InSe matrix and PbTe NCs were observed with respect to annealing temperatures and are discussed.