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The effect of microstructure on the ferromagnetic shape memory effect in Fe-Pd alloys was examined focusing on the orientation distribution, the grain boundary character and the grain size. Fe-29.7-31.0 at.%Pd polycrystals composed of columnar or equiaxed grains were prepared and their magnetostriction was measured under a magnetic field up to 10 kOe. The magnetostriction of the columnar crystals was much larger than that of the equiaxed ones due to the development of 100 fibre texture and 100 tilt grain boundary. In particular, a large magnetostriction of 4.5×10-4 was obtained even in the polycrystals. The grain boundaries of the columnar crystals also influenced the variant selection of martensites, resulting in strong dependence of the magnetostriction on the direction of magnetic field. Larger grain size did not always result in larger magnetostriction in Fe-Pd alloys. An increase in the grain size of the alloys was sometimes accompanied by the development of several sets of twin variants within a grain, resulting in a decrease in the magnetostriction. [ABSTRACT FROM AUTHOR]