The objective of the present study is to address the gap in the fundamental knowledge on the effect of doping and co-doping in ZnO nanostructures. In this regard, we explore the significant impact of Al- and Cu co-doping on band-gap and associated changes in the ZnO system. Sol-gel co-precipitation was used to synthesize ZnO-based nanostructures to accomplish the objective. Crystallite size determined by XRD was in the range of 6.44-37.58 nm and the lattice constant, c, initially decreased with co-doping, accompanied by an increase. Strong co-doping with Cu altered the nature of microstrain from tensile to compressive. FTIR studies predicted that Al and Cu were incorporated at Zn-O site through the formation of Al-O and Cu-O bonds, while UV-vis studies suggested the reduction of the band-gap when Al and Cu were incorporated in ZnO. The underlying reason was Cu-3d and O-2p exchange interaction in Zn(Al,Cu)O system. Quenching of this exchange interaction occurred in the presence of specific combination of dopant and co-dopant, along with blocking of the low energy transitions, eventually leading to a band-gap slightly greater than undoped ZnO. Furthermore, the emission peak observed in the photoluminescence spectra implied redshift induced by Al-doping, which was not influenced on Cu co-doping. Another important observation was the presence of ferromagnetic character in all samples, where saturation magnetization decreased with the increase in Al and Cu content in ZnO matrix, a behaviour attributed to anti-ferromagnetic coupling of spins of Cu ions at the substitutional sites of Zn-O. Lastly, electron microscopy revealed that the morphology of undoped ZnO transformed from granular to sand-rose on doping with Al, while Cu co-doping led to the formation of heavy clusters. The new insights on the band-gap reduction and associated structural changes in doped ZnO-based nanostructured materials have the potential for next generation of spintronic devices.