This research paper investigated the change of optical and structural properties resulting from depositing and thermally induced diffusing of Ag layer into Ge20Se50S30 film. The thermally evaporated bilayer Ag/Ge20Se50S30 film was subjected to 200 °C thermal annealing, which resulted in diffusing the top Ag layer in the bottom Ge20Se50S30 layer. XRD illustrated that all films were amorphous. Additionally, the presence of component elements in the prepared films was verified by energy-dispersive X-ray analysis (EDX). The linear and nonlinear optical parameters of the Ge20Se50S30, as-prepared and annealed Ag/Ge20Se50S30 films were evaluated by fitting the transmittance T(λ) measured at a wavelength range of 200–2500 nm based on Swanepoel's method. The indirect optical bandgap was decreased by 0.41 eV due to Ag deposition onto Ge20Se50S30 film. The thermal diffusion of Ag increased the optical bandgap by 0.15 eV with decreasing the disorder proved by Urbach energy values. Using Wemple–DiDomenico and Sellmeier models, the analysis of the refractive index's dispersion were conducted. Furthermore, nonlinear properties (NLO), including third-order nonlinear susceptibility (χ(3)), nonlinear refractive index (n2), as well as nonlinear absorption coefficient (βc) were calculated using semi-empirical relations. •The effect of annealing on the structural and optical properties of Ag/Ge20Se50S30 bilayer thin films was studied.•The normal dispersion behavior of the refractive index was analyzed by the Wemple-DiDomenico and Sellmeier models.•The non-linear optical properties were estimated using semi-empirical relations.