Nanocluster formation during heavy ion bombardment of a thin contiguous Ag layer sandwiched between two continuous SiO2 layers has been observed using in situ transmission electron microscopy (TEM). During ion bombardment, irradiation-induced plastic flow of the Ag film enlarges pre-existing pin holes and separates the film at grain boundaries transforming the as-deposited thin Ag film into three-dimensional microcrystals having diameters greater than 30 nm. This plastic flow process is similar to that observed in free-standing Ag specimens during heavy ion irradiation. In addition to plastic flow, ballistic recoils inject Ag atoms into the SiO2 where they precipitate into nanoclusters. Both effects are greatly enhanced by simultaneous electron and ion irradiation.