ZnO is a promising candidate as an environment friendly thermoelectric (TE) material. However, the poor TE figure of merit (zT) needs to be addressed to achieve significant TE efficiency for commercial applications. Here we demonstrate that selective enhancement in phonon scattering leads to increase in zT of RGO encapsulated Al-doped ZnO core shell nanohybrids, synthesized via a facile and scalable method. The incorporation of 1 at% Al with 1.5 wt% RGO into ZnO (AGZO) has been found to show significant enhancement in zT (=0.52 at 1100 K) which is an order of magnitude larger compared to that of bare undoped ZnO. Photoluminescence and X-ray photoelectron spectroscopy measurements confirm that RGO encapsulation significantly quenches surface oxygen vacancies in ZnO along with nucleation of new interstitial Zn donor states. Tunneling spectroscopy reveals that the band gap of ~ 3.4 eV for bare ZnO reduces effectively to ~ 0.5 eV upon RGO encapsulation, facilitating charge transport. The electrical conductivity enhancement also benefits from the more than 95% densification achieved, using the spark plasma sintering method, which aids reduction of GO into RGO. The same Al doping and RGO capping synergistically brings about drastic reduction of thermal conductivity, through enhanced phonon-phonon and point defect-phonon scatterings. These opposing effects on electrical and thermal conductivities enhances the power factors as well as the zT value. Overall, a practically viable route for synthesis of oxide - RGO TE material which could find its practical applications for the high-temperature TE power generation.