X-ray photoelectron spectroscopy (XPS) was employed to investigate Mg80Ti20 thin film samples prepared by magnetron sputtering and density functional theory (DFT) calculations were performed on atomistic models with similar stoichiometry. As Ti is known to be immiscible in Mg, the microstructure and atomic distribution of Mg–Ti thin films are not fully understood. In this work, it was shown by DFT calculations that the density of states (DOS) depends strongly on whether Ti is arranged in nano-clusters or if it is distributed quasi-randomly. The calculated DOS was compared to valence band spectra measured by XPS, as a new way of indirectly probing short-range order of such thin films. The XPS results of Mg80Ti20 were found to correspond best with the DOS calculated for the nano-cluster model, supporting the view that Ti forms small clusters in such sputtered thin films. Copyright © 2012 John Wiley & Sons, Ltd.