This article presents a new rotor design to reduce rotor eddy current loss of a high-speed permanent magnet synchronous machine for flywheel energy storage system. Instead of using common nonmagnetic sleeves, the new rotor incorporates permeable retaining sleeves (PRSs) to fix permanent magnets on the rotor hub. The PRSs are made of permalloy that features high permeability and high electrical conductivity. Thus, skin depths for asynchronous harmonics are extremely small. On the other hand, the PRSs are electrically insulated along the circumferential direction. Owing to these two reasons, rotor eddy current loss at open circuit decreases by 64.2% without sacrificing torque output, compared with an original rotor with nonmagnetic retaining sleeve. In addition, thermal and structural finite element analyses are performed to calculate rotor temperature distribution and evaluate the structural integrity of the new rotor. Rotor eddy current loss reduction benefits lowering rotor temperature rise. Prototype machine with the new rotor is fabricated, and preliminary tests are carried out to confirm the analysis results.