ZnO thin films were grown by ablation of a ZnO ceramic target using pulsed excimer laser (KrF) under 1 mTorr oxygen partial pressure over (0001) α-Al2O3 substrates held at 750°C. Highly c-axis oriented (0002) ZnO films with visible range optical transparency over 80% were obtained. Inhomogeneous distribution of strain in the film growth direction was studied by line shape analysis of X-ray diffraction and broad luminescence features centered on near band edge transition at 3.3 eV. Strain in the film adversely affects optical gain and excitonic threshold of UV emission. Post-growth oxygen annealing of films at 850°C for 1 h reduces strain and associated defects at ZnO film interface with (0001) Al2O3 substrate. FWHM of X-ray rocking curves show corresponding lowering from 12.5 arc min to 9.0 arc min signifying improved ZnO crystal quality. ω-rocking curves show line features with two superimposed peaks belonging to interfacial layer and bulk ZnO film. Graded strain in ZnO film is related to differently oriented interfacial layer formed at inception stage of film growth. Decrease in conductivity of annealed ZnO films show that O2-vacancies are primary defects. Formation of strain free (0002) oriented optical quality ZnO films based on combined process of growth in low O2 pressure and post growth anneal at high O2 pressure is proposed for UV-optoelectronic applications.