Ag/ZnO nano-hetero-junctions were synthesized by an electrochemical route. The optical absorption spectroscopy and photoluminescence studies reveal the reaction mechanism at the junction. Optical absorption spectra indicate presence of well-defined ZnO excitonic feature along with the Ag surface plasmon absorption feature at 400 nm. Moreover, ZnO green photoluminescence appears on junction formation with Ag. Detailed analysis of emission and excitation processes indicate that efficient charge transfer is taking place from ZnO to Ag. Ag is also responsible for creation of levels in the HOMO-LUMO gap of ZnO. This finding may be of relevance so far as p-type doping in ZnO is concerned.