The discovery of a tenfold increase in magnetostriction of Fe by alloying nonmagnetic Ga was a breakthrough in magnetostrictive materials. The large magnetostriction is attributed to tetragonal nanoheterogeneities dispersed in the bcc matrix. A further remarkable fivefold increase is achieved by trace rare earth doping (<1 at%) up to a value of ≈1500 ppm, more than 50 times that of pure iron. However, it remains a mystery why trace rare earth dopants can induce such giant magnetostriction. Here, it is found that interaction of rare earth dopants with the nanoheterogeneities produces the giant magnetostriction, through a combination of experimental studies, firstprinciples calculation and phase field simulations. The dopants tend to enter the nanoheterogeneities, increasing their distortion thereby creating a larger tetragonal distortion of the matrix as well as increased magnetocrystalline anisotropy. A mesoscopic model is developed using phase field simulation showing that the bulk tetragonal distortion arises mainly from those nanoheterogeneities with fixed Ga-Ga pairs parallel to the applied magnetic field. Increased tetragonal distortion of the doped nanoheterogeneities leads to further distortion of the matrix. The results deepen the understanding of heterogeneous magnetostriction, and will guide the search for new magnetic materials with giant magnetostriction.