This　paper　proposes　a　novel　permanent　magnet　retarder　(PMR)　structure　that　uses　water　cooling　to　improve　the　braking　performance　of　conventional　PMR　for　heavy　vehicles.　A　finite　element　model　for　a　water-cooled　PMR　was　developed　by　considering　the　temperature　dependence　of　magnetic　characteristics　and　heat　conductivity.　The　eddy　current　and　temperature　distribution　were　analyzed　using　the　magneto-thermal　coupled　method.　Retarder　performance　was　tested　at　a　test　bench.　The　test　results　show　that　the　calculated　temperature　and　braking　torque　agreed　fairly　well　with　the　measured　results.　PMRs　can　maintain　a　low　working　temperature　by　using　water　cooling.　Compared　with　air-cooled　retarder,　this　retarder＇s　braking　torque　does　not　decrease　much　under　continuous　working　conditions.