ZnSe1-XTeX nanocrystals (NCs) are promising photon emitters with tunable emission across the violet to orange range and near-unity quantum yields. However, these NCs suffer from broad emission line widths and multiple exciton decay dynamics, which discourage their practicable use. Here, we explore the excitonic states in ZnSe1-XTeX NCs and their photophysical characteristics in relation to the morphological inhomogeneity of highly mismatched alloys. Ensemble and single-dot spectroscopic analysis of a series of ZnSe1-XTeX NC samples with varying Te ratios coupled with computational calculations shows that, due to the distinct electronegativity between Se and Te, nearest-neighbor Te pairs in ZnSe1-XTeX alloys create localized hole states spectrally distributed approximately 130 meV above the 1S(h) level of homogeneous ZnSe1-XTeX NCs. This forms spatially separated excitons (delocalized electron and localized hole in trap), accounting for both inhomogeneous and homogeneous line width broadening with delayed recombination dynamics. Our results identify photophysical characteristics of excitonic states in NCs made of highly mismatched alloys and provide future research directions with potential implications for photonic applications.