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We have characterized Zn1–xCoxO thin films grown on sapphire (0001) substrates by pulsed laser deposition. We have found for x = 0.25 that inhomogeneous Zn1–xCoxO films with wurtzite ZnO phase mixed with rock-salt CoO and hexagonal Co phases are formed when the growth temperature (Tg) is relatively high (⩾600 °C) and the O pressure (Po2) is fairly low (⩾10–5 torr). The presence of the Co clusters leads to room temperature ferromagnetism. Homogeneous Zn1–xCoxO alloy films with wurtzite structure are predominantly paramagnetic. High-quality epitaxial Zn1–xCoxO alloy films are formed at a growth condition of Tg= 600 °C and Po2 = 10–5 torr. Under this optimized growth condition, Co can be dissolved into ZnO up to around 40%. Photoluminescence spectra and electrical properties of Zn1–xCoxO strongly depend on the Co content.