This paper reports the effects of post-annealing of ZnO thin films on their microstructure and the device performance of the transistors fabricated from the films. From X-ray diffraction and transmission electron microscopy characterization, we uncovered that the grain size increased with the annealing temperature escalating and that the film stress shifted from compressive to tensile due to the grain size increment. Electrical characterization revealed that the grain size increase damaged the device performance by drastically lifting the off-current level. By annealing the devices in an $O_2$ ambient (instead of air), we were able to suppress the off-current while improving the electron mobility.