We have synthesized Dy3+-doped ZnO nanoparticles at room temperature through the sol–gel method. X-ray diffraction and Scanning electron microscopic studies confirm the crystalline nature of the particles. Excitonic absorption of ZnO shows three different bands, and we observe that incorporation of Dy3+ results in the shifting and broadening of the n=1 absorption band of ZnO. Photoluminescence studies done at the excitation wavelength of 335 nm show broad emission containing five different bands. Open-aperture z-scan studies done at 532 nm using 5 ns laser pulses show an optical limiting behavior, which numerically fits to a three-photon type absorption process. The nonlinearity is essentially resonant, as it is found to increase consistently with Dy3+ concentration. This feature makes Dy3+-doped ZnO a flexible optical limiter for potential device applications.