In this paper a concept of Position-Dependent Damping (PDD) is proposed in which the damping coefficient varies with position and the damper force is a function of both relative velocity and position or relative displacement across the damper. A suitable damping law is proposed for variation of damping coefficient with position for improving performance of passive vehicle suspension. Various parameters are identified for the complete specification of PDD. A new parameter "Energy Dissipation Index" (EDI) is defined for the performance analysis of dampers. The optimum parameters of the damping law are obtained on the basis of EDI. The transient and steady-state response of single DOF vehicle model with linear spring and position dependent damping is analyzed for bump and sinusoidal road input, by performing numerical simulation using MATLAB®. The simulation results show that a properly designed PDD reduces gap between the conflicting requirements the ride comfort and the road holding.