Localized synthesis of 3-8 nm Si nanocrystals (nc-Si) in PECVD-grown Si-rich SiO2 (SRSO) film is demonstrated using CO2 laser annealing at an intensity below the ablation-threshold (6.0 kW/cm2). At an optimized surface temperature of 1285°C, the precipitated nc-Si in CO2-laser-annealed SRSO film results in near-infrared photoluminescence (PL) at 806 nm, whereas the ablation damage induced at higher laser intensities as well as temperatures results in blue PL at 410 nm related to structural defects. The refractive index of the laser-annealed SRSO at 633 nm increases from 1.57 to 2.31 as the laser intensity increases from 1.5 to 6.0 kW/cm2. Transmission electron microscopy analysis reveals that the average size and volume density of Si nanocrystals embedded in the SRSO film are about 6 nm and 4.5×1016 cm-3, respectively. The CO2 laser annealing with controlled intensity and spot size can potentially accomplish in-situ, localized annealing of the SRSO film without causing irreversible damage to nearby electronics.