Potential energy recovery is an encouraging way to save energy in a hydraulic lifting system and a variable-speed permanent magnet synchronous generator (PMSG) is one of the key components. In this paper, an optimization design of the PMSG is given based on the analysis of working conditions and requirements. The rotor configuration of the PMSG employs a segmented Halbach permanent magnet (PM) array, for it is beneficial to the airgap flux density distribution. A parameterized design approach, which combines analytical and finite element analysis, is proposed to improve the efficiency and accuracy of the design procedure. The main part of the procedure is divided into two steps. First, the losses are minimized by optimizing the dimensions and flux density distributions of the stator with an analyticalmodel. Second, the geometry of the PM array is designed with a finite element method to satisfy the flux requirement determined in the first step. Temperature rise, armature reaction, and demagnetization are also calculated. A prototype of the new designed PMSG has been fabricated and tested on the experimental platform. Expected experimental results are achieved, verifying the effectiveness of the design.