MgZnO is emerging as a vital semiconductoralloy system with desirable optical properties that can span a large range of the UV spectrum. Due to its benign chemical character, MgZnO is considered to be an environmentally friendly material. This paper presents studies on annealing as a useful and straightforward approach for the enhancement of the optical and crystal quality of Mg 0.17 Zn 0.83 O nanocrystalline films grown via DC sputtering. The alloys were studied via several imaging and optical techniques. It was found that high-temperature annealing, *900°C, in Argon atmosphere, significantly improves the solubility of the alloy. This temperature range is consistent with the thermal diffusion temperature of Mg needed for the creation of a soluble alloy. Moreover, the annealing process was found to minimize the undesirable visible luminescence, attributed to Mg and Zn interstitials, while significantly enhancing the bandgap sharpness and the efficiency of the UV-luminescence at *3.5 eV. The analysis indicated that these optical attributes were achieved due to the combined effects of good solubility, an improved morphology, and a reduction of native defects. The annealing was also proven to be beneficial for the reduction of the compressive stress in the alloy: a relaxation *1.8 GPa was calculated via Raman scattering. The inherent stress was inferred to originate mainly from the granular morphology of the alloys.