Density functional theory-based investigation of the electronic, magnetic, and optical characteristics in pure and ytterbium (Yb) doped ZnO has been carried out by the plane-wave pseudopotential technique with generalized gradient approximation. The calculated lattice parameters and band gap of pure ZnO are in good agreement with the experimental results. The energy band-gap increases with the increase of Yb concentration. The Fermi level moves upward into the conduction band after doping with Yb, which shows the properties of an n-type se miconductor. New defects were created in the band-gap near the conduction band attributed to the Yb-4f states. The magnetic properties of ZnO were found to be affected by Yb doping; ferromagnetic property was observed for 4.17% Yb due to spin polarization of Yb-4f electrons. The calculated optical properties imply that Yb doped causes a blue shift of the absorption peaks, significantly enhances the absorption of the visible light, and the blue shift of the reflectivity spectrum was observed. Besides, a better transmittance of approximately 88% was observed for 4.17% Yb doped ZnO system. The refractive index and the extinction coefficient were observed to decrease as the Yb dopant concentration increased. As a result, we believe that our findings will be useful in understanding the doping impact in ZnO and will motivate further theoretical research.