Pure and Co-doped ZnO nanoparticles were synthesized by a sol gel method. The structure, morphology, and properties of as-prepared samples have been studied using X-ray diffraction (XRD), transmission electron microscopy (TEM), energy dispersive spectroscopy (EDS), and ultraviolet visible absorption spectroscopy (UV vis) as well as by photoluminescence (PL) spectrometry. The results showed that the diameter of the well-dispersed Co-doped ZnO nanoparticles is about 5 nm and that dopant Co2+ ions substitute Zn2+ ions sites in ZnO nanocrystals without forming any secondary phase. The optical measurements show that the Co doping can effectively tune energy band structure and enrich surface states in both UV and VL regions, which lead to novel PL properties of ZnO nanoparticles. Compared to the undoped sample, a new emission caused by transitions between localized Co2+ d levels appears at 624 nm.