Abstract In this work, we present a detailed study on GaN:Gd layers doped in situ with the Gd concentration ranging from 7×1015 cm-3 3×1017 cm-3 using photoconductivity, photo- thermoelectric power, photoluminescence and vibrating sample magnetometry techniques. Our study shows that Gd incorporation produces large number of defects in the layer, which results in a broad distribution of defect states centered at 450 meV above the valence band. It has been found that multiple types of defects are formed in the layer during the Gd incorporation. However, the density of only one defect type, which results in a strong luminescence feature at 3.05 eV in the photoluminescence spectra recorded at low temperatures in GaN:Gd layers, has been found to decrease significantly upon annealing and at the same time, the saturation magnetization is also observed to reduce, suggesting that these defects are responsible for the magnetic properties observed in this system.