<p>In the present work, pure and Fe-doped ZnO thin films were synthesized on ITO and Corning glass substrates via cost-effective spin-coating. The films were then annealed between 200 and 500&#xa0;°C. The structural, optical, and magnetic characteristics of the films, and their NO_x gas-sensing properties were analyzed alongside the effects of annealing and Fe doping. X-ray diffraction showed that the prepared thin films were polycrystalline and had the wurtzite structure with the (002) plane having the highest intensity. Williamson–Hall analysis revealed that the film stress was relieved, and the crystallite size was increased (19 to 70&#xa0;nm for ZnO and 16&#xa0;nm to 63&#xa0;nm for Fe-doped ZnO) with an increase in the annealing temperature. The residual stress gradually reduces from 5.24 × 10¹⁰ to 3.31 × 10⁹ dynes/cm² in pure ZnO thin films whereas from 6.83 × 10¹⁰ to 1.61 × 10¹⁰ dynes/cm² in Fe-doped ZnO thin films with annealing. An increase in band gap from ~ 3.25 to 3.35&#xa0;eV (for ZnO) whereas from ~ 3.1 to 3.25&#xa0;eV (for Fe-doped ZnO) is observed with increasing annealing temperature to 500&#xa0;°C. The ratio of the intensity of NBE to the defect emission peak increased with annealing in PL spectra. The relative intensities of the defects are changed with annealing. The VSM measurements showed that Fe doping altered the defect structure and induced dilute magnetism at room temperature. ZnO thin films were also found to be sensitive to NO_x gas at 60 and 100&#xa0;ppm, and increased temperature led to improved sensing for all the films, while Fe-doped ZnO films had greater sensitivity in comparison to pure ZnO films. This study establishes a correlation between the structure of the film, defect chemistry, dilute magnetism, and gas-sensing behavior, highlighting their potential for multifunctional sensing and spintronic applications.</p>