A smaller electrode layer of an upper electrode is formed on a surface of a free magnetic layer. A domain controlling film of an insulating material is formed adjacent to the smaller electrode layer on the surface of the free magnetic layer. Magnetization of the free magnetic layer is oriented in a single direction based on magnetic exchange coupling between the domain controlling film and the free magnetic layer. An electric connection is established between the free magnetic layer and the upper electrode only through the smaller electrode layer. The path of a sensing current can be reduced in the free and a pinned magnetic layer. A higher sensitivity can thus be obtained in the CPP structure magnetoresistive element. Effective magnetic core width can also be reduced in the CPP structure magnetoresistive element.