Nd doped ZnO (Zn_1-xNd_xO, x = 0.0, 0.03, 0.06 and 0.10) nanoparticles were prepared by sol–gel method. Phase identification and effect of Nd ions substitution in ZnO lattice were confirmed by Rietveld analysis of XRD patterns. UV–Visible absorption spectra of pure and Nd doped ZnO nanoparticles showed the variation of the band gap in the range of 3.31–3.26 eV. The FTIR analysis of pure and Nd doped ZnO nanoparticles exhibited similar patterns in Zn/Nd–O bond length as obtained from the Rietveld refinement. Raman analysis confirmed the formation of a wurtzite structure wherein the local structure of ZnO nanoparticles is distorted due to Nd substitution. Magnetization-magnetic field hysteresis curves for pure and Nd doped ZnO nanoparticles revealed diamagnetic and paramagnetic behaviour, respectively. The paramagnetic behaviour of doped ZnO nanoparticles increased with increasing Nd concentration. However, the weak ferromagnetic behaviour of doped ZnO nanoparticles is observed after subtracting paramagnetic components, whereas the ferromagnetic behavior increased up to x = 0.06 samples, which further declined for x = 0.10 sample due to competition between paramagnetic and ferromagnetic ordering. The reduction in the ferromagnetic behavior for x = 0.10 sample indicates that the solubility limit of Nd atoms in ZnO lattice has been reached and paramagnetically coupled Nd atoms increased due to the increasing secondary phases.