Herein, Gd-doped BaTiO$_3$ (Gd:BTO) solid-solution powders were prepared by microwave-assisted heat treatment (MWH). The structural and chemical characteristics of the powders were analysed by scanning transmission electron microscopy and electron energy loss spectroscopy. The defect formation reactions relevant to Gd doping are discussed based on the change in the electron energy structure as well as the density functional theory calculations. Ba(OH)$_2$.H$_2$O, TiO$_2$.4H$_2$O and Gd(NO$_3)_3$.6H$_2$O were used as Ba, Ti and Gd precursors, respectively. A Ba/Ti mole ratio of 1.2 in the precursor at a reaction temperature of 300°C was determined to be the optimal synthetic conditions for preparing the Gd:BTO solid solution. Gd evidently occupied the Ti sites (denoted as $Gd_{Ti}$) of BaTiO$_3$ structure, and the substitution of Ti with Gd was accompanied by a change in the oxidation state of the Ti ions and the generation of oxygen vacancies. The magnetic susceptibility of the Gd:BTO powders increased with increase in concentration of $Gd_{Ti}$ with unidirectional electron spins. In contrast, the relative dielectric constant varied inversely with the Gd concentration owing to the evolution of oxygen vacancies and lattice distortion of the Gd:BTO powders with the increase in the Gd concentration.