Zinc oxide (ZnO) has attracted increasing attention as one of the most promising n-type thermoelectric materials. Although ZnO has been screened for high power factor, the ZT results were discouraging for its high thermal conductivity. Preparing nanocomposite is an effective way to reduce the thermal conductivity. The Ag-ZnO nanocomposites were synthesized by means of sol-gel method and their thermoelectric properties were investigated. Their XRD pattern and SEM miro graphs show that Ag nanoparticles are mainly lecated at the grain boundary of ZnO. Increasing Ag content leads to a significant decrease in absolute value of Seebeck coefficient (|S|). The electrical conductivity increases with increasing Ag content, while the thermal conductivity of Ag-ZnO nanocomposites is much lower than the bulk ZnO sample. The highest ZT (0.062) is found for 7.5 mol% Ag@ZnO nanocomposite at 750 K, thirty-five times of that of bulk ZnO. Since the Ag-ZnO junction leads to charge redistribution, the deflexed energy band obtained for ZnO should facilitate the electron transfer across the interface and thus accelerates the mobility of charge carriers. Thus increasing mobility of charge carriers would lead to the increase in electrical conductivity and a decrease in Seebeck coefficient. The difference of thermal conductivity comes from the lattice thermal conductivity. Due to the high density of interfaces and grain boundaries present in the nanocomposites, the scattering of phonons across a broad wavelength spectrum is enhanced. This suppresses the lattice thermal conductivity of the nanocomposites significantly.