A series of ferromagnetic Ni80Fe20(55 nm)/antiferromagnetic CoO (25 to 200 nm)/ferromagnetic Co (55 nm)/SiO2(substrate) trilayer thin films were fabricated by ion-beam assisted deposition in order to understand the role of ion beam modification on the interfacial and interlayer coupling. The microstructural study using transmission electron microscopy, X-ray reflectometry, and polarised neutron reflectometry showed that ion-beam modification during the deposition process led to an oxygen-rich Co/CoO nanocomposite interface region at the bottom layer. This interface caused a high exchange bias field for the ferromagnetic cobalt. However, the exchange bias for top permalloy ferromagnet remained low, in line with expectations from the literature for the typical interfacial energy. This suggest that the ion-beam enhancement of the magnetic exchange bias is localized to the Co/CoO interface where local microstructural effects provide the dominant mechanism.