The magnetic shape memory (MSM) alloy Fe70Pd30 is of particular interest for novel microactuator and sensor applications. This review summarizes the underlying physical and material science concepts for this MSM alloy system. First-principles calculations of the electronic and crystallographic structure together with combinatorial and epitaxial film studies are presented. By these complementary methods we can address the open key questions of MSM alloys and microsystems: Which are the driving forces for a martensitic transformation and how does this transformation proceed? How is it possible to improve the MSM properties by adding third elements? What is the role of external interfaces and which routes allow the preparation of freestanding epitaxial films?