Two-phase (La(0.7)Sr(0.3)MnO(3))(0.5):(CeO(2))(0.5) (LSMO:CeO(2)) heteroepitaxial nanocomposite films were grown on SrTiO(3) (STO) (001) by pulsed laser deposition (PLD). X-ray diffraction (XRD) and transmission electron microscopy (TEM) results show that LSMO:CeO(2) films epitaxially grow on STO as self-assembled vertically aligned nanocomposite (VAN). Magnetic and magnetotransport measurements demonstrate that the LSMO phase in the VAN structure behaves differently from its epitaxial single-phase counterpart, e.g. greatly enhanced coercivity (H(C)) and low-field magnetoresistance (LFMR). The enhanced properties in the VAN system are attributed to the interaction between the perovskite and the secondary phase or phase boundary. The results suggest that the growth of functional oxide in another oxide matrix with vertical heteroepitaxial form is a promising approach to achieve new functionality that may not be easily realized in the single epitaxial phase.