Effect of ambient gases on photoluminescence (PL) and electrical conductivity of films prepared using ZnO nanoparticles (NPs) have been investigated. It is observed that NPs of size below 20 nm kept inside a chamber exhibit complete reduction in their visible PL when oxygen partial pressure of the surrounding gases is decreased by evacuation. However the visible PL from ZnO NPs is insensitive to other major gases present in the ambient air. The rate of change of PL intensity with pressure is inversely proportional to the ambient air pressure and increases when particle size decreases due to the enhanced surface to volume ratio. On the other hand an assembly of ZnO NPs behaves as a complete insulator in the presence of dry air and its major components like N2, O2 and CO2. Electrical conduction having resistivity ~102 - 103 {Ω}m is observed in the presence of humid air. The depletion layer formed at the NP surface after acquiring donor electrons of ZnO by the adsorbed oxygen, has been found to control the visible PL and increases the contact potential barrier between the NPs which in turn enhances the resistance of the film. ; Comment: arXiv admin note: significant text overlap with arXiv:1008.2497