The detailed structure of ZnO doped with 5 at.% (metal) of the large aliovalent Eu3+-ions was investigated using EXAFS to describe the local Eu and Zn coordination. The microstructure, crystalline phases, contents and ZnO unit-cell parameters for the ZnO:5%Eu sponges synthesised at 200 to 900 oC were obtained by XRD, SEM, and TEM analysis. XRD showed peaks solely of h-ZnO for the 600 oC sample, while heating at 700 oC and higher caused phase separation into h-ZnO:Eu and c-Eu2O3. XRD showed a close to zero increase in ZnO unit cell-volume of ca. 0.4 vol%, compared to un-doped ZnO for the non-phase separated, clean oxide made at 600 oC. The Zn EXAFS data showed an almost intact local ZnO structure. The Eu EXAFS showed an unusually low coordination number (CN) of ca. 5 for the 200-600 oC samples, while the CN increased for higher temperatures, in concert with the formation of c-Eu2O3. 23 DFT-generated theoretical ZnO structures containing Eu-clusters built from 1 to 4 Eu3+-Zn2+-vacancy- Eu3+ pairs were compared with the experimental data. The lowest formation energies and ZnO unit-cell volume increase versus un-doped ZnO (0.6-0.7 vol%), were obtained when combining two or four Eu3+-Zn2+-vacancy- Eu3+ pairs into Eu4 and Eu8 clusters showing an average Eu CN of ca. 5. These theoretically determined lowest energy structures were all in good agreement with the experimental results obtained by EXAFS and XRD. Photoluminescence excitation and emission spectra performed on the ZnO:5at%Eu sponges obtained at various temperatures, showed strong quenching of the characteristic Eu3+ transitions for samples obtained at 600 and 800 °C, most likely due to changes in the ZnO defect states, which are crucial for Eu3+ excitation, and due to self-quenching upon Eu clustering and c- Eu2O3 phase separation. Thus, the optical data further supported Eu clustering found by EXAFS, DFT and XRD techniques, corroborating structure-property relationships in these materials. Overall, as far as we can find, the findings reported herein point to a doping structure very different from those previously proposed in the literature. It demonstrates that the semiconductor ZnO can host molecular-sized clusters of metal-oxides, very dissimilar to ZnO.