This study reports the effect of water on the formation of a zinc oxide (ZnO) thin film and the performance of a ZnO thin film transistor (TFT). A systematic study is designed to reveal the structure–property relationship of this promising metal oxide semiconductor for high performance TFTs at low processing temperatures. It is found that incorporating water molecules, either by water vapor annealing or as an additive in the ZnO precursor, improves the formation of ZnO thin films as semiconductors evidenced by a higher TFT mobility (μ) and lower threshold voltage (VT) shift. On the other hand, excessive amounts of water in the ZnO precursor serve as acceptor-like traps in the ZnO thin film, which consequently degraded the TFT performances. An optimal amount of crystalline water promotes an efficient conversion of the ZnO precursor to the ZnO semiconductor, thus yielding high performance TFTs at low processing temperatures, thereby enabling low-cost and solution-processable printed electronics.