Influence of terbium (Tb) doping on structural, optical and morphological properties of radio frequency magnetron-sputtered ZnO films has been investigated using various characterization techniques. Investigations revealed the formation of hexagonal wurtzite structure of ZnO with preferential c-axis orientation, presence of oxygen vacancies, modification of surface morphology and surface roughness, and confirmation of oxidation states of elements present in ZnO and Tb-doped ZnO films. Subsequently, films deposited with varied Tb concentrations have been tested for ethanol vapor sensing. Doped films exhibited reduction in optimum operable temperature, enhancement in ethanol sensing response and improvement in response/recovery time in comparison with pristine ZnO. The observed improvement in doped samples has been attributed to modifications in surface properties such as morphology, surface roughness, basicity, structural disorder and oxygen vacancies introduced due to dopant incorporation.