Epitaxial films of ZnO doped with magnetic ion Fe and, in some cases, with 1% Al show clear evidence of room temperature ferromagnetic ordering but containing huge amount of paramagnetic moment in it. The total ferromagnetic and paramagnetic contributions have been extracted from the low temperature SQUID measurements. A clear correlation between the magnetization per transition metal ion and the ratio of the number of carriers and number of donors have been found in these films and established the theory of carrier induced ferromagnetism. The experimental data has been best explained through the modification of electronic structure of oxide semiconductors with impurity states. (C) 2010 Elsevier B.V. All rights reserved.