Precursor phenomena preceding the martensite phase transition play a critical role in understanding the important technological properties of shape memory and magnetic shape memory alloys (MSMAs). Since the premartensite phase of Ni 2 MnGa MSMA, earlier considered as the precursor state of the martensite phase, has in recent years been shown to be a thermodynamically stable phase, Singh et al. [Nat. Commun. 8, 1006(2017], there is a need to revisit the precursor effects in these materials. We present here evidence for the existence of a precursor state of the premartensite phase in Ni 2 MnGa MSMA by atomic pair distribution function analysis of high-energy, high-flux, and high-Q synchrotron x-ray powder diffraction data. It is shown that the local structure of the cubic austenite phase corresponds to the short-range ordered (SRO) precursor state of the 3M premartensite phase at temperatures well above the actual premartensite phase transition temperature T PM and even above the ferromagnetic (FM) transition temperature T C . The presence of such a SRO precursor state of the premartensite phase is shown to lead to significant volume strain, which scales quadratically with spontaneous magnetization. The experimentally observed first-order character of the paramagnetic-to-FM phase transition and the anomalous reduction in the value of the magnetization in the temperature range T PM < T < T C are explained in terms of the coupling of the magnetoelastic strain with the FM order parameter and the higher magnetocrystalline anisotropy of the precursor state of the premartensite phase, respectively.