Nanoparticles of pure ZnO and Y3+ ions doped ZnO were prepared by hydrothermal method. Nano rods like morphologies were obtained in all the samples. The presence of various intrinsic defects in the doped samples was confirmed by Raman and PL spectra. Defect induced magnetic interaction and a large value of coercivity at RT has been observed. Enhanced dielectric value was obtained due to defect induced space charge polarization in the doped samples.