Bulk ZnO is a diamagnetic material but ferromagnetism (FM) has been observed by several groups in its nanostructures. In order to elucidate the room temperature (RT) FM of ZnO nanostructures, magnetic property of mechanically milled and subsequently annealed nano-ZnO powder has been investigated. Sample that has been milled and then annealed at 200 °C in ambient condition shows highest value of saturation magnetization (Ms), whereas lowest value of Ms has been noticed for the sample pre-annealed at 500 °C before milling. The variation of Ms with annealing temperatures closely resembles with the variation of average positron lifetime (τav) and S-parameter reported earlier for these nano-systems. It has also been found that Ms decreases systematically for increasing average grain size of the ZnO nanoparticles. Room temperature photoluminescence of the as-milled sample shows broad defect related emission centered ∼2.23 eV. Enhancement of such emission has been observed due to 200 °C annealing. Results altogether indicate that ferromagnetism in ZnO depends critically on the nature of disorder (open volume defects as well as defect clusters) at the grain surface region. In this connection, the possible role of zinc vacancy defects has also been emphasized. © 2013 AIP Publishing LLC.