Ion implantation and thermal processing were used to create a layer of Co nanoclusters embedded in the near-surface region of single-crystal sapphire. The Co nanoparticles ranged in size from 2-20 nm and were crystallographically aligned with the host sapphire. Specimens were irradiated with Xe and Pt ions, and the microstructural evolution of the nanoclusters was investigated by transmission electron microscopy. With increasing Pt or Xe ion dose, the Co nanoparticles lost their initially excellent faceting, although they remained crystalline. The host Al2O3 became amorphous and the resulting microstructure consisted of a buried amorphous layer containing the still-crystalline Co nanoparticles. EDS mapping and electron diffraction were used to determine the distribution of the implanted species, and the magnetic properties of the composite were measured with a SQUID magnetometer. The results show that ion beams can be applied to modify and control the properties of ferromagnetic nanocomposites, and, combined with lithographic techniques, will find applications in exercising fine-scale spatial control over the properties of magnetic materials.