The effect of thermal annealing on the performance of bulk heterojunction poly (3-hexylthiphone) (P3HT): [6,6]-phenyl-C61-butyric acid methyl ester (PCBM) solar cells has been examined. We found that the efficiency of the solar cell increases from 0.08% to 3.81% as the annealing temperature is varied from room temperature to 120°C. This improvement in the efficiency is due to the rearrangement of polymer molecules and nanoparticles. Annealing reorders the P3HT polymer chain structure (which was ruined by the PCBM nanoparticles) by segregating out PCBM molecules from polymer. Due to annealing, movement in the P3HT and PCBM particles is induced, which reorganize and form a phase segregated 3D structure of donor and acceptor molecules enhancing the charge transfer efficiency. It also improves the surface morphology and polymer chain interconnections resulting in enhancement of hole mobility through the polymer network.