Pure and dysprosium-loaded ZnO films were grown by radio-frequency magnetron sputtering. The films were characterized using a wide variety of morphological, compositional, optical, and electrical techniques. The crystalline structure, surface homogeneity, and bandgap energies were studied in detail for the developed nanocomposites. The properties of pure and dysprosium-doped ZnO thin films were investigated to detect nitrogen dioxide (NO2) at the ppb range. In particular, ZnO sensors doped with rare-earth materials have been demonstrated as a feasible strategy to improve the sensitivity in comparison to their pure ZnO counterparts. In addition, the sensing performance was studied and discussed under dry and humid environments, revealing noteworthy stability and reliability under different experimental conditions. In this perspective, additional gaseous compounds such as ammonia and ethanol were measured, resulting in extremely low sensing responses. Therefore, the gas-sensing mechanisms were discussed in detail to better understand the NO2 selectivity given by the Dy-doped ZnO layer.