Iron (Fe) doped Zinc Oxide (ZnO) nanoparticles are prepared by urea hydrolysis method at relatively lowtemperature at 130 °C. Unit cell volume increases with Fe2+ ions doping in ZnO indicating substitution of Zn2+ sites by Fe2+ ions. X-ray photoelectron spectroscopy (XPS) was used to study surface chemical state of the Fe doped nanoparticles. XPS study reveals that Fe ions in the sample are mainly in the chemical state of Fe2+. The crystallite sizes are in range 52-62 nm. Photoluminescence intensity decreases with increase in Fe2+ doping concentration in ZnO. The wavelength corresponding to the band-edge emission decreases from 399 to 392 nm upon doping with Fe2+ ions in ZnO. Similarly, the band-edge absorption peak shifts slightly to lower wavelength when ZnO is doped with Fe2+ ions. It is established that band gap of ZnO increases slightly on Fe2+ ions in ZnO lattice.