The degradation of organic pollutants in the aqueous medium using semiconductor photocatalysts has become an attractive method for detoxification of water. ZnO is an efficient photocatalyst with few disadvantages such as: (i) the wide band gap (3.37 eV); and (ii) the fast recombination rate of photogenerated electron–hole pairs which limit the photodegradation efficiency of bare ZnO photocatalyst. Herein, we report a strategy for the suppression of electron–hole pair recombination rate, extention the absorption edge in the visible region and enhancement of photocatalytic efficiency by introducing rare earth metal as a dopant. We present the fabrication of pure and Er/Nd doped ZnO semiconductor photocatalysts with hexagonal wurtzite structure using sol gel method. The prepared photocatalysts were characterized by standard analytical techniques, such as XRD, SEM-EDS, TEM, FTIR, XPS, BET, TGA, DTA, DSC, PL, DRS and UV-vis spectroscopy. The photocatalytic activity of pure and doped ZnO nanoparticles (NPs) was investigated by studying the degradation of two different organic dyes as a function of irradiation time. The results indicate that the photocatalytic activity of doped ZnO was found to be higher than bare ZnO for degradation of dyes. This may be attributed predominantly due to decrease in the recombination rate by the efficient charge separation of photoinduced electron–hole pair as inferred from PL studies. The results also indicate that parameters such as amount of photocatalyst dose, initial pH and different quenchers play a significant role for degradation of model dyes. The synthesized photocatalyst was recycled four times for degradation of dye with very little decrease in efficiency. Interestingly, comparative in vitro antibacterial and anticancer potential of the pure and Er/Nd doped ZnO NPs were also investigated against human pathogenic bacterial strains and various human cancer cell lines. The result of our study clearly revealed that Nd doped ZnO NPs showed better antibacterial as well as anticancer efficacy as compared to pure and Er doped ZnO NPs.