Magnetic shape memory alloys (MSMAs) are the smart materials which can undergo a reversible structural phase transition when a magnetic field is applied. The experimentally most studied MSMA, Ni2MnGa, undergoes a martensitic phase transition from a high temperature cubic phase to a low temperature tetragonal phase. In this work, a detailed study of structure, magnetic and mechanical properties of Ni2MnGa in these phases were performed using density functional theory (DFT). The predicted lattice constant, bulk modulus, magnetic moments and elastic constants of the initial L21 structure are in good agreement with experimental results and previous calculations. We report the martensitic phase at c /a = 1.26 for non-modulated and c /a = 0.93 for 5M modulated structures which are consistent with the experiments. Analysis of electronic density of states showed that the double minority spin peak appeared at the Fermi level is due to the hybridization of Ga 4p and Ni 3d states. The peaks in the minority spin in the cubic structure reverse their order during martensitic transformation. The elastic constants of martensitic phases were also calculated to encourage measurements of these quantities. (© 2008 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim)