The rational design of composite nanoparticles with desired optical and electronic properties requires the detailed analysis of surface and bulk contributions to the respective overall function. We use flame spray pyrolysis (FSP) to generate nanoparticles of the ternary Zn-Mg-O system the compositions of which range from solid solutions of Zn(2+) ions in periclase MgO to phase separated particle mixtures which consist of periclase (cubic) MgO and wurtzite (hexagonal) ZnO phases. The structure and composition of the composite Zn(x)Mg(1-x)O (0 ≤ x ≤ 0.3) particles are investigated using X-ray diffraction and high-resolution transmission electron microscopy, whereas UV diffuse reflectance and photoluminescence (PL) spectroscopy are used for the investigation of their optical properties. Vacuum annealing has been carried out to track the effects of stepwise elimination of surface adsorbates on the photoexcitation and PL emission properties. We demonstrate that for Zn(0.1)Mg(0.9)O particles, the admixed ZnO suppresses the MgO specific surface excitons and produces a PL emission band at 470 nm. Although gaseous oxygen partially reduces the emission intensity of hydroxylated particles, it leads to entire quenching in completely dehydroxylated samples after vacuum annealing at 1173 K. Consequently, surface hydroxyls at the solid-gas interface play a significant role as protecting groups against the PL-quenching effects of O(2). The obtained results are relevant for the characterization of ZnO-based devices as well as for other metal oxide materials where the impact of the surface composition on the photoelectronic properties is usually neglected.