Quantum‐confinement‐induced shifts in the fundamental absorption edge of isolated CdTe crystallites are reported in CdTe‐glass composite thin films produced using a sequential rf magnetron sputtering process employing two separate sputtering sources. Films ranging in thickness from 0.5 to 4.5 &mgr;m and containing as much as 30 vol % CdTe have been produced, illustrating the versatility of this technique over a more conventional melting approach. Post‐deposition heat treatments were used to produce average crystallite sizes in the range 46–158 A˚. An improved fit to theory at larger crystal sizes is found if a cylindrical crystal morphology is assumed. The effective mass of the confined specie, which governs the shift of the absorption edge with crystal size, is found to be 0.20m0(spherical morphology) and 0.12m0(cylindrical morphology), both of which are greater than the exciton‐reduced mass in bulk CdTe. The data suggests, therefore, that a non‐negligible Coulomb interaction may still exist in crystals even as small as 0.31 times the size of the bulk Wannier exciton diameter. Planar waveguiding has also been demonstrated in these samples as a preliminary step to the production of waveguide‐based nonlinear device structures.