Nano-sized aluminum-doped zinc oxide (AZO) powder was synthesized by a dc thermal plasma process using aluminum nitrate and zinc nitrate as the precursors. The injected precursors were vaporized in the plasma flame followed by vapor-phase reaction and subsequent quenching of the vaporized precursors produced nanosized AZO. XRD results indicate the presence of wurtzite structure without any alumina peaks and SEM micrographs revealed spherical particles. The nanosized AZO would make an excellent material for use as photocatalyst due to high surface to volume ratio. The photocatalytic properties of AZO nanopowder were investigated using the degradation of methylene blue under ultra-violet irradiation. The effects of various parameters, such as catalyst amount, the presence of oxidant, temperature, bubbling of O2 gas, pH, specific surface area, oxygen vacancies, and initial concentration, were studied. The optical study showed that doping leads to a red-shift in band gap. Furthermore, the AZO nanoparticles exhibited superior photocatalytic activity compared with ZnO. The improvement was ascribed to an increase in specific surface area and oxygen vacancies. Kinetic analyses indicated that the photodegradation of methylene blue followed a pseudo-first order kinetic model based on the Langmuir-Hinshelwood (L-H) mechanism.