The effects of the Al ratio on the morphological and structural parameters, thermal stability, surface area, optical band gap, and methane (CH4) gas–sensing of AlxZn1-xO nanoparticles were investigated. The homogeneous precipitation method was used to prepare AlxZn1-xO nanoparticles (x = 0, 0.5, 1, 2, and 4 at.%) and their compositions were revealed by EDX mapping. The hexagonal crystal structure of ZnO was obtained by annealing at 600 ◦C and wasn’t affected by the Al ratio. The crystallite/particle size was decreased while dislocation density and stacking fault were increased as Al content increased. The Al ratio controls the morphology of AlxZn1-xO e.g., rod-like, and nano-sheet shapes were observed for higher Al ratios. UV–visible absorption spectroscopy was utilized to investigate the optical absorbance and optical band gap (Eg), e.g., increasing the Al content increased Eg from 3.38 eV (for ZnO) up to 5.8 eV for Al0.04Zn0.96O. Al-doped ZnO has a considerable impact on both the surface area and the thermal stability of ZnO. The maximum surface area (189.72 m2 /g) was achieved for the Al0.005Zn0.995O. The sensing parameters as a function of operating temperature and Al doping ratio have been thoroughly tested. The Al0.005Zn0.995O revealed the best sensing performance toward CH4 gas.