The different thermal expansion coefficients and lattice mismatch between ZnO and Al may produce residual stress in Al-ZnO (AZO) thin films. Annealing processes can be applied to modulate this residual stress. In this study, three different rapid thermal annealing (RTA) temperatures (350 oC, 450 oC, and 600 oC) were applied to an AZO thin film, prepared using sol-gel method. The mechanical properties, optical properties, and structure of the AZO thin film were investigated experimentally. The results show that increasing the RTA temperature increased the Young’s modulus and hardness of the films. The grain size of the films also increased with increasing RTA temperature. However, the film thickness and shear stress component decreased with increasing RTA temperature. Both compressive and tensile stress decreased gradually with increasing film thickness after RTA treatment. It was demonstrated that the use of a relatively high RTA temperature can effectively relax the residual stress in AZO thin films.