The recent finding of multifunctional semiconductor materials with magnetic and optical properties has attracted scientific and technological attention due to their potential applications in nanotechnology and spintronics. We present here our results on synthesis and characterization of bare and Fe-doped ZnO nanocrystals by a modified sol-gel method, which does not require annealing of the samples. XRD characterization of the products confirmed the exclusive formation of the host ZnO wurtzite structure, with an average crystallite size between 11-13 nm. FT-IR analyses of the samples suggested the adsorption of acetate species, from precursor metal salts, onto the oxide surface. UV-Vis absorption data evidenced the decrease in the value of the band gap energy with increasing the atomic fraction 'x', of dopant Fe. This red shift is attributed to the sp-d exchange interaction between the band electrons and the localized d electrons of the Fe2+ substituting Zn ions. Raman measurements confirmed the Fe doping in ZnO.