Significantly enhanced anisotropic magnetoresistance (MR) in permalloy (Ni0.81Fe0.19) films deposited on a thin (Ni0.81Fe0.19)1−xCrx or Ni1−xCrx underlayer is reported. The maximum ΔR/R enhancement was observed using the underlayer with x≈0.44 at an optimum thickness of ≈30–45 Å, depending on the deposition technique. An enhancement of 75%–150% was observed for 45–430 Å thick permalloy films, compared to the films deposited without this underlayer. The ΔR/R enhancement is attributed to the decrease in the resistivity ρ and the increase in Δρ of the permalloy film due to the formation of large (111) textured crystal grains in the permalloy films deposited on this underlayer, as revealed by the x-ray diffraction results obtained using synchrotron radiation.