Zn1-xFexO thin films were grown on Al2O3(0001) substrates by radio-frequency magnetron sputtering. The alloys show wurtzite crystal structure up to x=0.24 with reduced c-axis lattice constant compared to that of pure ZnO. Fe 2p core-level photoemission measurements reveal the evidence for the coexistence of the Fe3+ and Fe2+ ions substituting the tetrahedral the Zn2+ sites. The optical properties of the samples were measured by the spectroscopic ellipsometry at room temperature in the 1.5–5 eV photon energy region. With increasing x, the optical band-gap (E0) absorption edge is found to shift slightly to lower energies (70 meV for x=0.24) than that of the pure ZnO. Below the E0 edge, optical absorption structures are observed at about 1.7, 2.4, and 2.8 eV. These structures are interpreted as due to the d-d transitions from the 6A1 ground state to the excited states, 4T1 (1.7 eV), 4T2 (2.4 eV), and 4E and 4A1 (2.8 eV), of the crystal-field-split 3d5- sup> multiplets of the tetrahedral Fe3+ ion.