We have investigated the electronic structure of Gd@C60 using ab initio calculations, photoemission and resonant photoemission (constant initial state spectroscopy). In comparing our calculations based on the local spin density approximation and the Hubbard model description with the observed photoemission spectra, we conclude that Gd 4f states exhibit enhanced correlation energies. These correlation energies have values larger than those normally observed in metallic gadolinium and gadolinium compounds. We attributed the enhanced correlation to the diminished screening of the encapsulated Gd. Both calculation and experiment confirm a strong hybridization between the valence states of Gd and the C 2p states of the fullerene cage