How to set -source 1.7 in Android Studio and Gradle

You can change it in new Android studio version(0.8.X)

FIle-> Other Settings -> Default Settings -> Compiler (Expand it by clicking left arrow) -> Java Compiler -> You can change the Project bytecode version here

Java 7 support was added at build tools 19. You can now use features like the diamond operator, multi-catch, try-with-resources, strings in switches, etc. Add the following to your build.gradle.

android {
    compileSdkVersion 19
    buildToolsVersion "19.0.0"

    defaultConfig {
        minSdkVersion 7
        targetSdkVersion 19
    }

    compileOptions {
        sourceCompatibility JavaVersion.VERSION_1_7
        targetCompatibility JavaVersion.VERSION_1_7
    }
}

Gradle 1.7+, Android gradle plugin 0.6.+ are required.

Note, that only try with resources require minSdkVersion 19. Other features works on previous platforms.

Link to android gradle plugin user guide

Link to see how source vs target are different

Maybe these answers above are old but with the new Android Studios 1, you do the following to see the module to run on 1.7 (or 1.6 if you prefer). Click File --> Project Structure. Select the module you want to run and then under "Source Compatibility" and "Target Compatibility", select 1.7. Click "OK".