NiFe2O4 nanocrystals were dispersed in silica by a sol-gel route. The dried gel was amorphous, in which isolated Fe3+ ions had a weak interaction with silica matrix, as characterized by a weak IR absorption at ca. 580 cm-1. Heat treatment at 400 °C resulted in nickel ferrite clusters being partially formed, and these clusters were observed to interact with the matrix through Si-O-Fe bonds. This interaction reached its maximum with the complete formation of NiFe2O4 clusters as the temperature was raised to 600 °C. Above this temperature, NiFe2O4 clusters grew larger into nanocrystals, while the interaction between the nanocrystals and silica matrix disappeared with breakage of Si-O-Fe bonds. The grain growth for magnetic nanoparticles was accompanied with rearrangement of amorphous silica network. The preference of forming NiFe2O4 nanocrystals eliminated the possibility of precipitation of crystallite component oxides, e.g., NiO, γ-Fe2O3, or Fe3O4 in amorphous silica matrix, or crystalline silica, e.g., cristobalite or quartz, even when the treatment temperature was 1100 °C. Fe ions in silica glasses were determined by Mössbauer spectroscopy to be present exclusively as Fe3+ ions in a high-spin state at octahedral coordination, and the chemical environment of the Fe3+ ions seemed to remain unchanged until the nickel ferrite clusters crystallized. The formation mechanism for NiFe2O4 nanocrystals can be explained in terms of Ni2+ ions shifting from the tetrahedral centers to undistorted octahedral sites in the spinel lattice and the partial transformation of FeO6 octahedron to FeO4 tetrahedron. The critical dimension for the NiFe2O4 nanocrystals in silica was detected as ca. 9 nm. Below the critical size, NiFe2O4 nanocrystals had a superparamagnetic single-domain structure, while the nanocrystals with particle sizes larger than the critical size exhibited bulklike behavior.