A simple solution-based chemical precipitation method was used to synthesize the Fe-doped ZnO nanoparticles. X-ray Photoelectron Spectroscopy (XPS) measurement showed that mostly Fe²⁺ ions are incorporated in a lower percentage of Fe doping, while a higher percentage leads to Fe³⁺. The broad absorption band in the visible range shows the d−d crystal field transitions between the multiplets of 3d⁵ configuration of the high spin Fe³⁺ substituting Zn²⁺ under the influence of a tetrahedral ZnO crystal field. Raman measurement also supports the optical absorption data. ESR results show that the occurrence of broad signals is due to the exchange interactions among the TM ions in the doped samples. Fe exists in a mixed phase in Fe1 and the wide curve in Fe10 is due to the exchange interaction among Fe³⁺− Fe³⁺. EXAFS measurements confirm that the spectral features showing the peak edge position is similar to Fe₂O₃ corresponding to the Fe³⁺ state. From this, it can be inferred that Fe exists mostly in a +3 oxidation state in all the samples, but there may be existence of +2 states in the surface layers as observed from XPS measurement. Fe1 shows RTFM with a coercivity of ∼70 Oe. The non-saturating, linear magnetic moment at higher applied magnetic field is due to the paramagnetic contribution from the uncoupled Fe³⁺ ions.