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Contradicting results about the origin of room temperature ferromagnetism (RTFM) from measurements on different forms of transition metal (TM)-doped ZnO nanostructured materials lead to strong debates on whether RTFM could be an intrinsic property to TM-doped ZnO or not. Through careful synthesis and extensive characterizations, we have excluded the extrinsic contaminations as the cause of RTFM. Our experimental study confirms that defects such as oxygen vacancies lie on surface of nanorods and are likely a source of RTFM. X-ray absorption and emission spectroscopy (XAS and XES) suggest that the doped Co ions, primarily in the divalent state, replace the Zn ions inside the tetrahedral without introducing Co clustering or Zn-related defects. Band gap narrowing upon Co doping is observed in both optical reflectance and O K-edge XAS/XES and is in agreement with the presence of oxygen vacancies and strong sp–d hybridization. Furthermore, such a trend can be nicely reproduced in GGA+U band structure calculations. Calculations also suggest that these oxygen vacancies are likely to congregate at low-energy (101) and (100) surfaces, instead of inside the bulk. Our findings highlight the importance of using the nanocrystalline surfaces to enhance the impurity concentrations and stabilize the ferromagnetism without post-sample annealing in an oxygen-deficient environment.