Nanocrystalline Zn_1-xGd_xO (x=0, 0.02, 0.04, 0.06, and 0.08) ceramics were synthesized by ball milling and subsequent solid-state reaction. The transmission electron microscopy (TEM) micrograph of as synthesized samples revealed the formation of crystallites with an average diameter of 60 nm, and the selected area electron diffraction (SAED) pattern confirmed the formation of wurtzite structure. A red shift in the band gap was observed with increasing Gd³⁺ concentration. The photoluminescence of nanocrystalline Gd³⁺ doped ZnO exhibited a strong violet–blue emission. Concentration dependence of the emission intensity of Gd³⁺ in ZnO was studied, and the critical concentration was found to be 4 mol% of Gd³⁺. The Gd³⁺ doped ZnO exhibited paramagnetic behavior at room temperature, and the magnetic moment increased with Gd³⁺ concentration.