In this paper we report structural and optical properties of magnesium substituted zinc oxide (Zn1-xMgxO) nanocrystals (∼10–12 nm) synthesized by low temperature route. In the low temperature synthesis route it was possible to reach x=0.17 without segregation of Mg rich phase. The exact chemical composition has been established by quantitative analysis. Rietveld analysis of the x-ray diffraction (XRD) data confirms the wurtzite structure and a continuous compaction of the lattice (in particular, the c-axis parameter) as x increases. There is an enhancement of the strain in the lattice as the Mg is substituted. The band gap also gets enhanced as x is increased and reaches a value of 4 eV for x=0.17. From the transmission electron microscope and the XRD data it has been concluded that when there is a phase segregation for x≫0.17, there is a shell of Mg(OH)2 on the ZnO. The absorption also shows persistence of the excitonic absorption on Mg substitution. The nanocrystals show near band edge photoluminescence (PL) at room temperature which shows blueshift on Mg incorporation. In addition to the near band edge emission the ZnO and Zn1-xMgxO alloy nanocrystals show considerable emission in the blue-green region at wavelength of ∼550 nm. We find that the relative intensity of the green emission increases with the Mg concentration for very low x (up to x=0.05) and on further increase of the Mg concentration there is a sharp dec- rease of relative intensity of the green emission eventually leading to a complete quenching of green emission. It is concluded that due to phase segregation (for x≥0.20), the formation of the shell of Mg(OH)2 on the ZnO leads to quenching of the green emission. However, this shell formation does not have much effect on the near band edge PL.