Zirconium oxynitrides are excellent candidates for many technological applications, especially decorative applications. For the use of zirconium oxynitrides as decorative coatings, the thermal stability is of crucial importance. Therefore zirconium oxynitrides, containing both oxygen and nitrogen, were prepared by pulsed d.c. reactive magnetron sputtering at ƤN2 / (ƤN2 + ƤO2) of 0.98. The as-prepared films were annealed in air for 1 h. The full set of annealing was 100, 200, 300, 400, 450, 500 and 550°C. The annealed zirconium oxynitride films exhibited nitrogen loss (oxidation). The nitrogen loss results in a great variance in compositional, electrical and optical properties. The energy dispersive analysis of X-ray and X-ray diffraction were used to examine the compositional and structural properties, respectively. A huge increase in the electrical resistivity was observed upon oxidation. The films annealed at higher temperatures (≥450°C) showed insulating behavior with low extinction coefficient (<1) and reasonable refractive index values. The optical band gap values of the films annealed at 500°C and 550°C are in good agreement with the previously reported values for ZrO2.