Polypyrrole (PPy) is embedded in polyvinyl alcohol (PVA) matrix to give a homogeneous composite solution by dispersing PPy in PVA solution. Scanning electron microscopic (SEM) study on the film prepared from the composite solution shows uniform distribution of nearly spherical shaped PPy grains of average diameter of 20 nm. The X-ray diffraction (XRD), UV–visible and Fourier transform infra-red (FTIR) spectroscopic characterizations of the composite film are carried out for structural and optical properties. The enhanced thermal stability of the PPy–PVA composite film is confirmed by thermogravimetric analysis (TGA). XRD shows signature of amorphous nature for PVA along with some crystallinity arising for PPy. UV–visible absorption spectrum shows two absorption peaks for π–π* and polaronic transition; FTIR spectrum suggests cross linking between PPy and PVA. Studies on sensing of the PPy–PVA composite film for ethanol, ammonia, toluene, chloroform and acetone vapors at room temperature (300 K) are done for comparison. The composite film shows best response among all these vapors towards ethanol requiring smallest response time.