We investigated the effect of gadolinium doping (1-5 at.%) on the magnetic and dielectric properties of Fe3O4 nanoparticles, synthesized by the chemical co-precipitation technique, primarily to understand the onset of multifunctional properties such as ferroelectricity and magnetodielectric coupling. The substitution of larger Gd3+ ions at smaller Fe3+ octahedral sites in inverse spinel Fe3O4 has significantly influenced the morphology, average crystallite size, and more importantly, the magneto-crystalline anisotropy and saturation magnetization. The magneto-crystalline anisotropy and the saturation magnetization decreases substantially, however, significant increase in the average crystallite size is observed upon Gd doping. Furthermore, temperature-dependent dielectric studies suggest that these nanoparticle systems exhibit relaxor ferroelectric behavior, with much pronounced ferroelectric polarization moment recorded for 5 at.% Gd doped Fe3O4 as compared to its undoped counterpart.