An MR element has a pinned layer, a spacer layer, and a free layer successively stacked in the order named. The free layer includes a Heusler alloy layer in at least a region thereof adjacent to the spacer layer. An oxide is distributed as sea-islands in the interface between the Heusler alloy layer and the spacer layer. The Heusler alloy layer virtually has a stoichiometric composition. The oxide has an RA in the range from 0.10 .OMEGA..mu.m.sup.2 to 0.36 .OMEGA..mu.m.sup.2.