The electronic properties of graphene sheets decorated with nanodiamond (ND) particles have been investigated. The chemical fusion of ND to the graphene lattice creates pockets of local defects with robust interfacial bonding. At the ND-bonded regions, the atoms of graphene lattice follow sp 3-like bonding, and such regions play the role of conduction bottlenecks for the percolating sp 2 graphene network. The low-temperature charge transport reveals an insulating behavior for the disordered system associated with Anderson localization for the charge carriers in graphene. A large negative magnetoresistance is observed in this insulating regime, and its origin is discussed in the context of magnetic correlations of the localized charge carriers with local magnetic domains and extrinsic metal impurities associated with the ND. © 2012 American Chemical Society.