Doping with transition metal ion is an effective way to modulate the physical properties of ZnO. Here, structural, optical, gas-sensing and magnetic properties of (Mn, Ni) co-doped ZnO nanorods prepared by hydrothermal method are investigated systematically. Reitveld refinement of X-ray diffraction patterns reveal (Mn, Ni) codoped ZnO nanorods with hexagonal crystal structure and a contraction in lattice parameters Mn and Ni-doping. Since transition metal ions doping could influence the microstructure and defect state, the (Mn, Ni) codoped ZnO nanorods show the higher sensitivity to ethanol gas and stronger room temperature saturation magnetization of nanorods. X-ray photoelectron spectra and UV-vis absorption spectra analysis reveal that oxygen vacancies related to defects in the nanorods increase with increasing Ni doping concentration, resulting in the increased carrier concentration. And the singly charged oxygen vacancies increase with Ni doping concentration derived from Gaussian fitting PL spectra result. This work demonstrates that the singly charged oxygen vacancies and surrounding transition metal ions forming bound magnetic polarons are accountable for the origin of ferromagnetism in (Mn, Ni) codoped ZnO nanorods.