Polymer nanocomposites constitute an important class of materials whose properties depend on the state of dispersion of the nanoparticles in the polymer matrix. Here we report the first observations of confinement-induced enhancement of dispersion in nanoparticle-polymer blend films. Systematic variation in the dispersion of nanoparticles with confinement for various compositions and matrix polymer chain dimensions has been observed. For fixed composition, strong reduction in glass transition temperature, Tg, is observed with decreasing blend-film thickness. The enhanced dispersion occurs without altering the polymer-particle interactions and seems to be driven by enhanced matrix-chain orientation propensity and a tendency to minimize the density gradients within the matrix. This implies the existence of two different mechanisms in polymer nanocomposites, which determines their state of dispersion and glass transition.