The non-linear optical properties of InP/SiO2 nanogranular films fabricated by radio frequency magnetron co-sputtering technique have been investigated by z-scan technique using a single Gaussian beam of pulse dye laser. Results of the investigations show that the magnitude of the nonlinear refractive index y for the film annealed at 310 ℃ at wavelength of 585 nm (non-resonant) is the order of 10^{-11} m2/W, which is 5 orders of magnitude as large as those of bulk InP. The optical nonlinearity of the films is quite sensitive to the annealing temperature. The enhancement of optical nonlinearity of the films results from strong quantum confinement of the photo induced carriers and the enhancement of the oscillator strength of the localized states.