The present study describes the effect of europium doping in enhancing the optical properties of ZnO nanoparticles. Eu doped ZnO (EZ) nanoparticles were prepared by the soft-solution method with varying the dopant concentration. The structure and phase analysis have been carried out by x-ray diffraction (XRD) measurement which shows the size of the particles lies in 30-60 nm range. Improved crystallinity in ZnO is also observed along with lower angle shift of XRD peaks and increase in lattice parameters like unit cell volume which may be explained as the substitutional effect of Eu at Zn sites. Microstructure of the sample has been studied by transmission electron microscopy (TEM) and the images show the average size of EZ nanoparticles is in the range of 30-50 nm. Both XRD and TEM studies give the evidence of Eu incorporation in ZnO lattice. The EZ nanoparticles exhibit intense red emission upon excitation of 400 nm light which are characteristic 4f-intra-shell (D-5(0)-F-7(2)) transitions of Eu3+ other than the defect emissions of host ZnO. The dopant ions are located in ZnO by substituting Zn2+ at a low-symmetry site (C-3v) and also near the surface in some distorted lattice sites. The photocatalytic activity has been evaluated by degradation of hazardous methyl orange (MO) dye with exposure to UV light. Among the tested samples, the sample with optimal doping concentration shows notable photocatalytic activity and achieved 90% degradation of MO dye within 180 min of UV irradiation. This photocatalytic activity of EZ has been found to be better as compared to that of ZnO in identical experimental conditions.