We report, for the first time, correlations between crystal structure, microstructure and magnetofunctional response in directionally solidified [110]-textured Fe83Ga17Erx (0 < x < 1.2) alloys. The morphology of the doped samples consists of columnar grains, mainly composed of a matrix phase and precipitates of a secondary phase deposited along the grain boundary region. An enhancement of more than ~275% from ~45 to 170 ppm is observed in the saturation magnetostriction value (λs) of Fe83Ga17Erx alloys with the introduction of small amounts of Er. Moreover, it was noted that the low field derivative of magnetostriction with respect to an applied magnetic field (i.e., dλs/dHapp for Happ up to 1000 Oe) increases by ~230% with Er doping (dλs/dHapp,FeGa= 0.045 ppm/Oe; dλs/dHapp,FeGaEr= 0.15 ppm/Oe). The enhanced magnetostrictive response of the Fe83Ga17Erx alloys is ascribed to an amalgamation of microstructural and electronic factors, namely: (i) improved grain orientation and local strain effects due to deposition of Er in the intergranular region; and (ii) strong local magnetocrystalline anisotropy, due to the highly anisotropic localized nature of the 4f electronic charge distribution of the Er atom. Overall, this work provides guidelines for further improving galfenol-based materials systems for diverse applications in the power and energy sector.