High purity ZnO nanopowders were pressed into pellets and annealed in air between 100 and 1200 °C. The crystal quality and grain size of the ZnO nanocrystals were investigated by x-ray diffraction 2θ scans. Annealing induces an increase in the grain size from 25 to 165 nm with temperature increasing from 400 to 1200 °C. Scanning electron microscopy and high-resolution transmission electron microscopy observations also confirm the grain growth during annealing. Positron annihilation measurements reveal vacancy defects including Zn vacancies, vacancy clusters, and voids in the grain boundary region. The voids show an easy recovery after annealing at 100–700 °C. However, Zn vacancies and vacancy clusters observed by positrons remain unchanged after annealing at temperatures below 500 °C and begin to recover at higher temperatures. After annealing at temperatures higher than 1000 °C, no positron trapping by the interfacial defects can be observed. Raman spectroscopy studies confirm the recovery of lattice disorder after annealing. Hysteresis loops are observed for the 100 and 400 °C annealed samples, which indicate ferromagnetism in ZnO nanocrystals. However, the ferromagnetism disappears after annealing above 700 °C, suggesting that it might originate from the surface defects such as Zn vacancies.