Zn(0.97)Fe(0.03)O nanoparticles were synthesized by the sol-gel method. X-ray diffraction (XRD) and transmission electron microscope (TEM) analysis revealed that the samples had pure ZnO wurtzite structure and Fe ions were well incorporated into the ZnO crystal lattice. X-ray photoelectron spectroscopy (XPS) showed that both Fe(2+) and Fe(3+) existed in Zn(0.97)Fe(0.03)O. The result of x-ray absorption near-edge structure (XANES) further testified that Fe ions took the place of Zn sites in our samples. Magnetic measurements indicated that Zn(0.97)Fe(0.03)O was ferromagnetic at room temperature.