In several experimental studies, room temperature ferromagnetism in Gd-doped ZnO nanostructures has been achieved. However, the mechanism and the origin of the ferromagnetism remain controversial. We investigate the structural, magnetic, and electronic properties of Zn 48O48 nanowires doped with Gd, using density functional theory. Our findings indicate that substitutionally incorporated Gd atoms prefer occupying the surface Zn sites. Moreover, the formation energy increases with the distance between Gd atoms, signifying that no Gd-Gd segregation occurs in the nanowires within the concentration limit of ≤2%. Gd induces ferromagnetism in ZnO nanowires with magnetic coupling energy up to 21 meV in the neutral state, which increases with additional electron and O vacancy, revealing the role of carriers in magnetic exchange. The potential for achieving room temperature ferromagnetism and high TC in ZnO:Gd nanowires is evident from the large ferromagnetic coupling energy (200 meV) obtained with the O vacancy. Density of states shows that Fermi level overlaps with Gd f states with the introduction of O vacancy, indicating the possibility of s-f coupling. These results will assist in understanding experimental findings in Gd-doped ZnO nanowires.