High purity MgO nanopowders were pressed into pellets and annealed in air from 100 to 1400 °C. Variation of the microstructures was investigated by X-ray diffraction and positron annihilation spectroscopy. Annealing induces an increase in the MgO grain size from 27 to 60 nm with temperature increasing up to 1400°C. Positron annihilation measurements reveal vacancy defects including Mg vacancies, vacancy clusters, microvoids and large pores in the grain boundary region. Rapid recovery of Mg monovacancies and vacancy clusters was observed after annealing above 1200°C. Room temperature ferromagnetism was observed for MgO nanocrystals annealed at 100, 700, and 1000°C. However, after 1400°C annealing, MgO nanocrystals turn into diamagnetic. Our results suggest that the room temperature ferromagnetism in MgO nanocrystals might originate from the interfacial defects. © 2012 Elsevier B.V. All rights reserved.