Purpose: We aim to provide a systematic methodology for the optimal design of MRD for improved damping capacity and dynamical adjustability in performing its damping function. Methods: A modified Bingham model is employed to model and simulate the MRD considering the MR fluid’s compressibility. The parameters that describe the structure of MRD and the property of the fluid are systematically examined for their contributions to the damping capacity and dynamically adjustability. A response surface method is employed to optimize the damping force and dynamically adjustable coefficient for a more practical setting related to the parameters. Results: The simulation system effectively shows the hysteretic characteristics of MRDs and shows our common sense understanding that the damping gap width and yoke diameter have significant effects on the damping characteristics of MRD. By taking a typical MRD device setup, optimal design shows an increase of the damping force by 33% and an increase of the dynamically adjustable coefficient by 17%. It is also shown that the methodology is applicable to other types of MDR devices. Conclusion: The compressibility of MR fluid is one of the main reasons for the hysteretic characteristics of MRD. The proposed simulation and optimization methods can effectively improve the MRD’s damping performance in the design stage.