Nanocrystalline indium oxide films with extremely small grains in range of 7 to 40 nm were prepared by sol-gel method. The influence of grain size on the sensitivity of indium oxide to nitrogen dioxide in low concentration at room temperature was investigated under the UV illumination and without illumination. The sensitivity increases with the decrease of grain sizes when In2O3 is illuminated while in the dark In2O3 with intermediate grain size exhibits the highest response. An explanation of the different behavior of the In2O3 with different grain size sensitivity to NO2 under illumination and in the dark is proposed. The pulsed illumination is demonstrated may be used for NO2 detection at room temperature that significantly reduces the power consumption of sensor.