Vertically aligned nanocomposites with vertical interfaces are a novel concept that show powerful advantages over conventional nanocomposites with lateral interfaces. However, significant obstacles to a systematic understanding of vertical interfaces still remain. Here, heteroepitaxial (BaTiO3)0.5:(Sm2O3)0.5 nanocomposite thin films have been fabricated and the conduction behaviors have been investigated. A spontaneous phase ordering with clear vertical interfaces has been found in the composite films. Because of the structural discontinuity as well as a large strain generated at the interfaces, the vertical interfaces are revealed to become the sinks to attract oxygen vacancies. The accumulated oxygen vacancies contributed to a largely reduced leakage current and a different leakage mechanism in the composite films compared to that of the pure BaTiO3 film. The present work represents a methodology to manipulate functionalities by designing configuration of the interfaces in oxide thin films.