Microstructure modification of silicon nanograins embedded in silicon nitride films by introducing hydrogen reactant in the plasma enhanced chemical vapour deposition process and their optical properties are analysed using Raman scattering, optical absorption and photoluminescence (PL) measurements. It is found that the silicon nanograins embedded in the silicon nitride (SiNx) matrix are transformed into silicon nanocrystals and the optical properties of the films change dramatically when introducing H2 into Ar-sustained plasma. The optical absorption coefficient of the films within the band gap decreases by about one order of magnitude and the PL intensity increases significantly, compared with that without hydrogen introduction. These results suggest that atomic hydrogen in the plasma has the function of crystallizing silicon nanograins and passivating defects at the silicon nanograins/SiNx interface.