Vertically aligned ZnO nanorod arrays with rod lengths in the range of 200–1500 nm were fabricated by a hydrothermal method. No stimulated emission was observed in as grown nanorods. Annealing of the rods in forming gas and oxygen significantly affected their optical properties and enabled the achievement of stimulated emission. The lowest lasing threshold and defect emission as well as the longest spontaneous emission decay times were obtained for nanorods annealed in oxygen flow. This indicates that interstitial oxygen, which is commonly assumed to be the cause of yellow-green defect emission, is not the dominant defect in hydrothermally grown nanorods.