MR-brakes work by varying viscosity of a magnetorheological (MR) fluid inside the brake. This electronically controllable viscosity leads to variable friction torque generated by the actuator. A properly designed MR-brake can have a high torque-to-volume ratio which is quite desirable for an actuator. However, designing an MR-brake is a complex process as there are many parameters involved in the design which can affect the size and torque output significantly. The contribution of this study is a new design approach that combines the Taguchi design of experiments method with parameterized finite element analysis for optimization. Unlike the typical multivariate optimization methods, this approach can identify the dominant parameters of the design and allows the designer to only explore their interactions during the optimization process. This unique feature reduces the size of the search space and the time it takes to find an optimal solution. It normally takes about a week to design an MR-brake manually. Our interactive method allows the designer to finish the design in about two minutes. In this paper, we first present the details of the MR-brake design problem. This is followed by the details of our new approach. Next, we show how to design an MR-brake using this method. Prototype of a new brake was fabricated. Results of experiments with the prototype brake are very encouraging and are in close agreement with the theoretical performance predictions.