ZnO nanocrystals (NCs) capped with polyvinyl pyrrolidone reveal room temperature ferromagnetism. Incorporation of Al3+-ions induce defects in ZnO NCs leading to quenching of excitonic luminescence of ZnO at the cost of an increase in the intensity of oxygen vacancy related emission. Photoluminescence excitation spectra exhibit an additional hump like feature attributed to Al-doping. Saturation magnetization of Al3+-doped ZnO NCs is the same as that of the undoped ZnO NCs. However, a remarkable decrease in the coercivity associated with change in the nature of M (T) curve and electron paramagnetic resonance signal with g = 1.96 is observed consequent to Al doping. The results provide direct evidence of the defects within the core of NCs that are responsible for the ferromagnetic ordering in the Al3+-doped ZnO. The M(T) curve unravels a typical exchange mechanism.