A magnetoresistance effect element is manufactured in the steps in which a first ferromagnetic layer is formed on a substrate, the first ferromagnetic layer is patterned to form a pinned layer, in the shape of a strip, having both end portions to which electrode pads are formed, the pinned layer is etched, for example, through ion milling, so as to form at least one nano-contact portion, an insulating layer is formed by embedding an insulating material into the etched pinned layer around the nano-contact portion, a second ferromagnetic layer is formed so as to contact at least the nano-contact portion, and this second ferromagnetic layer is patterned to form a free layer, in shape of strip, having both end portions to which electrode pads are formed.