Zn_0.95Co_0.05O and Zn_0.97Ni_0.03O nanorods, prepared by a solvothermal method, show intriguing morphology and magnetic properties when co-doped with Li. At low and moderate Li incorporation (below 10 and 3 at.% Li in the Co- and Ni-doped samples, respectively) the rod aspect ratio is increased and room temperature ferromagnetic properties are enhanced, whereas the ferromagnetic coupling in Zn_0.97Ni_0.03O is decreased for Li concentrations > 3 at.%. First-principles theoretical analyses demonstrate that Li co-doping has primarily two effects in bulk Zn_1-xM_xO (with M = Co or Ni). First, the Li-on-Zn acceptors increase the local magnetic moment by  depopulating the M 3d minority spin-states. The magnetic coupling is Ruderman–Kittel–Kasuya–Yosida-like both without and with Li co-doping. Second, Li-on-Zn prefer to be close to the M atoms to compensate the M–O bonds and to locally depopulate the 3d states, and this will help forming high aspect nanostructures. The observed room  temperature ferromagnetism in Li co-doped Zn_1-xM_xO nanorods can therefore be explained by the better rod morphology in combination with ionizing the magnetic M atoms.