XPS depth profiles were used to investigate the effects of rapid thermal annealing under varying conditions on the structural, magnetic and optical properties of Ni-doped ZnO thin films. Oxidization of metallic Ni from its metallic state to two-valence oxidation state occurred in the film annealed in air at 600 °C, while reduction of Ni2+ from its two-valence oxidation state to metallic state occurred in the film annealed in Ar at 600 and 800 °C. In addition, there appeared to be significant diffusion of Ni from the bottom to the top surface of the film during annealing in Ar at 800 °C. Both as-deposited and annealed thin films displayed obvious room temperature ferromagnetism (RTFM) which was from metallic Ni, Ni2+ or both with two distinct mechanisms. Furthermore, a significant improvement in saturation magnetization (Ms) in the films was observed after annealing in air (Ms = 0.036 μB/Ni) or Ar (Ms = 0.033 μB/Ni) at 600 °C compared to that in as-deposited film (Ms = 0.017 μB/Ni). An even higher Ms value was observed in the film annealed in Ar at 800 °C (Ms = 0.055 μB/Ni) compared to that at 600 °C mainly due to the diffusion of Ni. The ultraviolet emission of the Ni-doped ZnO thin film was restored during annealing in Ar at 800 °C, which was also attributed to the diffusion of Ni.