Magnesium-doped ZnO (ZMO) nanoparticles were synthesized through an oxalate coprecipitation method. Crystallization of ZMO upon thermal decomposition of the oxalate precursors was investigated using differential scanning calorimetry (DSC) and X-ray diffraction (XRD) techniques. XRD studies point toward a significant c-axis compression and reduced crystallite sizes for ZMO samples in contrast to undoped ZnO, which was further confirmed by HRSEM studies. X-ray photoelectron spectroscopy (XPS), UV/vis spectroscopy and photoluminescence (PL) spectroscopy were employed to establish the electronic and optical properties of these nanoparticles. (XPS) studies confirmed the substitution of Zn(2+) by Mg(2+), crystallization of MgO secondary phase, and increased Zn-O bond strengths in Mg-doped ZnO samples. Textural properties of these ZMO samples obtained at various calcination temperatures were superior in comparison to the undoped ZnO. In addition to this, ZMO samples exhibited a blue-shift in the near band edge photoluminescence (PL) emission, decrease of PL intensities and superior sunlight-induced photocatalytic decomposition of methylene blue in contrast to undoped ZnO. The most active photocatalyst 0.1-MgZnO obtained after calcination at 600 °C showed a 2-fold increase in photocatalytic activity compared to the undoped ZnO. Band gap widening, superior textural properties and efficient electron-hole separation were identified as the factors responsible for the enhanced sunlight-driven photocatalytic activities of Mg-doped ZnO nanoparticles.