Thermoelectrics are being rapidly developed for waste heat recovery applications, particularly in automobiles, to reduce carbon emissions. PbTe-based materials with small (<20 nm) nanoscale features have been previously shown to have high thermoelectric figure-of-merit, zT, largely arising from low lattice thermal conductivity particularly at low temperatures. Separating the various phonon scattering mechanisms and the electronic contribution to the thermal conductivity is a serious challenge to understanding, and further optimizing, these nanocomposites. Here we show that relatively large nanometer-scale (50–200 nm) Ag2Te precipitates in PbTe can be controlled according to the equilibrium phase diagram and these materials show intrinsic semiconductor behavior with high electrical resistivity, enabling direct measurement of the phonon thermal conductivity. This study provides direct evidence that even large nanometer-scale microstructures reduce thermal conductivity below that of a macro-scale composite of saturated alloys with Kapitza-type interfacial thermal resistance at the same overall composition. Carrier concentration control is achieved with lanthanum doping, enabling independent control of the electronic properties and microstructure. These materials exhibit lattice thermal conductivity which approaches the theoretical minimum above ∼650 K, even lower than that found with small nanoparticles. Optimally La-doped n-type PbTe-Ag2Te nanocomposites exhibit zT > 1.5 at 775 K.