Direct evidence of the formation of nitrogen molecules (N2) after ion implantion of ZnO has been revealed by an atomically resolved scanning transmission electron microscopy (STEM)–electron energy-loss spectroscopy (EELS) investigation. Taking advantage of the possibility of using multiple detectors simultaneously in aberration-corrected STEM, we utilize the detailed correlation between the atomic structure and chemical identification to develop a model explaining the formation and evolution of different defect types and their interaction with N. In particular, the formation of zinc vacancy (VZn) clusters filled with N2 after heat treatment at 650 °C was observed, clearly indicating that N has not been stabilized in the O substitution site, thus limiting p-type doping. Previous results showing an exceptional thermal stability of vacancy clusters only for the case of N-doped ZnO are supported. Furthermore, VZn–N2 stabilization leads to suppression of VZn–Zni recombination; hence, the highly mobile Zn interstitials preferentially condense on the basal planes promoting formation of extended defects (basal stacking faults and stacking mismatched boundaries). The terminations of these defects provide energetically favorable sites for further N2 trapping as a way to reduce local strain fields.