Highly monodisperse ZnO:Eu3+ nanocrystals have been synthesized by modified sol-gel method from ethanolic solutions. The effect of Eu3+ ions (x=0.05-0.30) concentration on the structural, optical and luminescent properties has been evaluated. No other than the ZnO-wurtzite phase was observed at all dopant levels, which was confirmed by FT-IR and Raman spectroscopy techniques. A blue shift of the exciton peak and the increase on the corresponding band gap were observed at increasing Europium contents, which would indicate an interaction between Eu3+ ions and the development of the ZnO host structure. The luminescence properties were also dependent on Europium contents; a systematic blue shift and enhancement of the intensity of visible luminescence peak, attributed to an increment of surface defects, was observed by a rising Europium concentration. The red luminescence band, representing the 5D0→7F0 transition, was clearly observed in nanocrystals after annealing at 300OC for one hour. The presence of this band could be considered as an evidence of the effective energy transfer from ZnO to Eu3+ ions.