The soft chemical route was used in the synthesis of undoped and 5% Mn doped ZnO nanocrystalline powders. XRD, TEM, TGA/DTA, FTIR, and superconducting quantum interference device techniques were used to study the structural, nano/microstructural, thermal decomposition and metastability aspects as a function of calcination temperatures (400–1100 °C) and magnetic properties. The evolution of the major wurtzite phase (ZnO) and minor non‐stoichiometric nanocrystalline defect cubic spinel phase (ZnMnO3–δ) at various temperatures is clearly seen. The magnetic hysteresis loop is observed at room temperature in the undoped and doped samples calcined at 400 °C. Interestingly, the hysteresis loop parameters (Ms, Hc) are found to enhance dramatically as soon as the concentration of the minor phase is large enough up to the calcination temperature 700 °C. In contrast, the magnetic hysteresis loop vanishes slowly for the sample calcined at 1000 °C, it disappears completely. The room temperature ferromagnetic behavior at 400 °C is understood in terms of intrinsic cationic/anionic defects, extrinsic defects associated with the various species chemisorbed on the surface of the nanoparticles of undoped and Mn doped ZnO. During thermal annealing a nanocrysatllline seconadary phase of non‐stoichiometric defect cubic spinel ZnMnO3–δ is formed, contributing to the enhancement of ferromagnetic behavior. All our experimental results are discussed in terms of model comparing various structural and localized electronic defects formed in the nanocrystalline powder.