Isothermal annealing of a eutectic dual phase Ni-Mn-Sn-Fe alloy was carried out to encourage grain growth and investigate the effects of grain size of the γ phase on the martensitic transformation behaviour and mechanical properties of the alloy. It is found that with the increase of the annealing time, the grain size and volume fraction of the γ phase both increased with the annealing time predominantly by the inter-diffusion of Fe and Sn elements between the γ phase and the Heusler matrix. The isothermal anneals resulted in the decrease of the e/a ratio and suppression of the martensitic transformation of the matrix phase. The fine γ phase microstructure with an average grain size of 0.31 µm showed higher fracture strength and ductility values by 28% and 77% compared to the coarse-grained counterpart with an average grain size of 3.31 µm. The fine dual phase microstructure shows a quasi-linear superelasticity of 4.2% and very small stress hysteresis during cyclic loading, while the coarse dual phase counterpart presents degraded superelasticity of 2.6% and large stress hysteresis. These findings indicate that grain size refinement of the γ phase is an effective approach in improving the mechanical and transformation properties of dual phase Heusler alloys.