CdS nanoparticles were synthesized by co-precipitation method. Samples were annealed in air for 3hrs in the temperature range of 200-700°C to study the effect of annealing temperature (Ta) on structural, morphological and optical properties of CdS nanoparticles. Monodispersed CdS was UV irradiated to investigate photo-induced changes in the optical properties of the samples. Structural and optical properties were characterized using XRD, HRTEM, UV-vis absorption and FTIR spectroscopy. The increase in average crystallite size from 3 to 23 nm as a result of annealing has been estimated from XRD. Total phase transition at Ta = 300oC from as prepared Cubic to hexagonal CdS structure and to CdSO3 monoclinic structure at Ta = 700oC. Analysis of UV-vis absorption spectra, show remarkable decrease in optical band gap from 3.4 for as prepared to 2.5eV at 500oC with increasing Ta, as a result of enhancement in crystallinity and increase in particle size, which in turn leads to the reduction of quantum confinement effect. UV induced effect on CdS nanoparticles dispersed in double distilled water leads to an increase in the optical band gap (photo-brightening).