We report on the observation of remarkable room-temperature ferromagnetism in nanocrystalline epitaxial Co:TiO2 films grown on sapphire (0001) substrates by a pulsed-laser deposition technique using high-density targets. The films were characterized by x-ray measurements, atomic force microscopy, micro-Raman, electron-paramagnetic resonance, and magnetization studies. The films exhibit three-dimensional islandlike growth that contains nanocrystalline particles. Our experimental results suggest that the remarkable ferromagnetism in Co:TiO2 films is controlled either by the interstitial Co2+ ions or small clusters, which are mainly present at the interface and on the surface of the films. Our work clearly indicates that Co interstitials and nanoclusters cause room-temperature ferromagnetism in Co-doped TiO2