HfO₂ thin films have been deposited on BK7 glass substrate by reactive RF sputtering technique at different oxygen/argon (O₂/Ar) gas flow ratios. The films are polycrystalline in nature with (−111) predominant monoclinic phase and the inter-planar spacing of the films is found to be decreasing with increasing O₂/Ar flow ratio causing compressive strain in the films. The dispersion of the refractive index is discussed in terms of the single-oscillator Wemple–DiDomenico model. The dispersion energy as well as the oscillator energy are correlated with the compressive strain in order to investigate the lattice strain effect on the optical properties of the films. The surface roughness and grain size of the films have been determined using atomic force microscopy. The residual mechanical stresses of the films probed by substrate curvature method are observed to be compressive in nature. The stress value decreases from 3.21GPa for films deposited in pure argon gas ambient to 1.17GPa for films deposited under O₂/Ar flow ratio up to 0.3. The variation of the residual stress with O₂/Ar flow ratio is explained through lattice expansion induced intrinsic compressive stress due to atomic peening and grain size dependent intrinsic tensile stress in the films. With respect to quality optical coating applications of reactively sputtered HfO₂ films, an optimum O₂/Ar flow mixing ratio (0.1 in the present study) is needed in order to achieve a useful balance between the refractive index and the mechanical stress.