Nanocrystalline Nd0.7Sr0.3MnO3 sample with an average particle size of 40 nm has been synthesized by citrate-complex method. The temperature-dependent magnetization shows the absence of long-range ferromagnetic (FM) order. The electron magnetic resonance study indicates the presence of magnetic inhomogeneity below 290 K. Electrical conductivity follows variable range hopping mechanism in paramagnetic (PM) regime. The low-temperature insulator-like resistivity seems to obey non-tunneling conductivity mechanism. The magnetoresistivity (MR) increases with decreasing temperature down to magnetic transition temperature (TC) and saturates below TC. The MR does not follow spin polarized tunneling mechanism in FM regime. The above results could be best described by spin-dependent hopping between the localized spin clusters together with the phase separation phenomenon. It is assumed that the clusters form due to the distribution of canted spins all over the volume of the nanoparticles and these canted spins prompt the itinerant electrons to localize. The analysis of the MR reveals that FM phase contributes to the total MR at low applied magnetic fields, whereas the PM phase contributes at relatively high fields. The above model quantitatively explains the observed MR. © 2006 Elsevier B.V. All rights reserved.