Polycrystalline Ni50Mn25Ga20Gd5 (at%) magnetic shape memory alloy was investigated in the as-prepared state and after annealing at 1430 K for 3 h. Microstructural analysis reveals dual-phase nature of the material with substantial distinction between Gd-rich and Gd-poor phases. Magnetic measurements performed in wide range of temperatures confirm reversible martensitic transformation in the annealed sample undergoing close to the room temperature. When it comes to the magnetic transition, the Curie temperature of the investigated alloy remains approximately unchanged at 370 K. Topography investigations conducted on the atomic force microscope in contact mode allow to measure 8 mm difference between minimum and maximum point of the martensite profile. The results from a series of nanoindentation tests show that hardness of the Gd-rich phase is 23%–35% higher than hardness of the Gd-poor phase, depending on the annealing state.