In the current study, a modified sol-gel route was used to produce undoped and Sm3+ doped (1 mol%, 3 mol% and 5 mol%) ZnO nanoparticles (NPs). The study of opto-structural properties of Sm3+ doped NPs was carried out both experimentally and theoretically. Complete dissolution of Sm3+ ions into the ZnO lattice is obviously seen from X-ray diffraction (XRD) analysis. Morphological evolution with doping was studied using field emission scanning electron microscopy (FESEM) and transmission electron microscopy (TEM). X-ray photoelectron spectroscopy (XPS) was carried out to confirm the presence of Sm3+ on the doped NPs. Increasing dopant quantity results in a redshift of the NPs along with a reduction in bandgap with increasing absorption in the visible range, and a minimum of 3.18 eV of optical bandgap for Zn0.97Sm0.03O is found. Photoluminescence spectroscopy reveals a drop in the recombination rate of electron–hole with increasing doping content till 3 mol%, followed by an increase of Zn0.95Sm0.05O. Photogenerated electron–hole pair recombination is revealed by the orange band in the luminescence spectra. Theoretical analysis was also carried out with density functional theory (DFT). This work also unfolds the fundamental understanding of the structural properties of the synthesized NPs to enhance photocatalytic activity successfully. Later, photocatalytic activity for the optimum composition, i.e., 3 mol%, was assessed experimentally.