The effects of Ag-induced acceptor defects on the band gap tuning and conductivity of Li:ZnO film grown by the sol-gel method were investigated. The structural analyses indicate that the Ag-Li:ZnO films possess hexagonal structure with the substitutional Ag defect at the Zn site (AgZn) and the interstitial Li defect (Lii). The decreased film transmittance and band gap with Ag-Li codoping is mainly due to the incorporation of foreign impurity levels by the AgZn and Lii defects. The electrical measurements reveal that doping can obviously improve the film conductivity, which could be attributed to the reduction of the grain boundary scattering and the inter-diffusion of the Ag nanoparticles, as well as the decreased ionization energy of the acceptor owing to the AgZn defects. The electronic structures of Ag-Li:ZnO were further studied by the first-principles calculations and the results show that the AgZn defects may lead to p-type conductivity of ZnO.