For Android Studio 1.3 : (Method 1)
Step 1 : Open gradle.properties file in your Android Studio project.
Step 2 : Add this line at the end of the file
org.gradle.jvmargs=-XX\:MaxHeapSize\=256m -Xmx256m
Above methods seems to work but if in case it won't then do this (Method 2)
Step 1 : Start Android studio and close any open project (File > Close Project).
Step 2 : On Welcome window, Go to Configure > Settings.
Step 3 : Go to Build, Execution, Deployment > Compiler
Step 4 : Change Build process heap size (Mbytes) to 1024 and Additional build process to VM Options to -Xmx512m.
Step 5 : Close or Restart Android Studio.