Herein, we present the synthesis, characterization and optical ammonia gas sensing of pure and Sn-doped vanadium oxide (V2O5) nanoparticles prepared by the sol-gel process. The V2O5 nanoparticles were doped with Sn concentrations of 2 wt%-6 wt%, and characterized using X-ray diffraction, atomic force microscopy, UV-vis spectroscopy and photoluminescence spectroscopy which confirmed the orthorhombic crystal structure. The crystalline size was found to decrease with enhancing the doping concentrations of Sn. The lattice-strain and crystalline size with the peak-broadening of pure and Sn doped V2O5 nanoparticles were analyzed by William-Hall (W-H) method and size-strain plot. The UV-vis absorption showed a decrease in the energy band gap (3.27 eV-3.07 eV) with an increase in the Sn doping concentration. The Sn-doped V2O5 nanoparticles were used to detect ammonia gas (5-50 ppm) through photoluminescence based detection method. Interestingly, it was observed that the optical response for the 2 wt% Sn doped V2O5 nanoparticles was maximum (77.84%) towards 50 ppm ammonia compared to other V2O5 nanoparticles based samples.