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Thermo‐electro‐magnetic materials with simultaneously large magnetocaloric (MC) and thermoelectric (TE) effects are the core part for designing TE/MC all‐solid‐state cooling devices. Compositing MC phase with TE material is an effective approach. However, the elemental diffusion and chemical reaction occurring at the two‐phase interfaces could significantly impair the cooling performance. Herein, Gd/Bi0.5Sb1.5Te3 (Gd/BST) composites were prepared by a low‐temperature high‐pressure spark plasma sintering method with an aim to control the extent of interfacial reaction. The reaction of Gd with the diffusive Te and the formation of GdTe nanocrystals were identified at the Gd/BST interfaces by the atomic‐resolution microscope. The formed BiTe' antisite defects and enhanced {000 l} preferential orientation in BST are responsible for the increased carrier concentration and mobility, which leads to optimized electrical properties. The heterogeneous interface phases, along with antisite defects, favor the phonon scattering enhancement and lattice thermal conductivity suppression. The optimized composite sintered at 693 K exhibited a maximum ZT of 1.27 at 300 K. Furthermore, the well‐controlled interfacial reaction has a slight impact on the magnetic properties of Gd and a high magnetic entropy change is retained in the composites. This work provides a universal approach to fabricating thermo‐electro‐magnetic materials with excellent MC and TE properties. [ABSTRACT FROM AUTHOR]