In this paper, the absorption and emission spectra of Nd:Y2.5Gd0.5Al5O12 (Nd:YGAG) crystal at room temperature have been studied. With a laser diode (LD) as the pumping source, the maximum 1.66 W continuous-wave (CW) laser output power has been obtained, with the optical-to-optical efficiency of 46.6% and the slope efficiency of 50.6%. For passively Q-switched operation, the shortest pulse width attained was 11.0 ns, with the pulse repetition rate of 32.0 kHz, with the peak power and pulse energy estimated to be 2.1 kW and 22.8 μJ, respectively.