Low temperature photoluminescence and optical absorption studies on 200 MeV Ag+15 ion irradiated Co-implanted ZnO thin films were studied. The Co clusters present in as implanted samples were observed to be dissolved using 200 MeV Ag+15 ion irradiation with a fluence of 1×1012 ions/cm2. The photoluminescence spectrum of pure ZnO thin film was characterized by the I4 peak due to the neutral donor bound excitons and the broad green emission. The Co-doped ZnO films show three sharp levels and two shoulders corresponding to 3t2g and 2eg levels of crystal field splitted Co d orbitals, respectively. The ultraviolet-visible absorption spectroscopy also shows the systematic variation of band gap after 200 MeV Ag+15 ion irradiation.