In order to ensure driving safety, heavy vehicles are often equipped with hydraulic retarder, which provides sustained and stable braking torque and converts the kinetic energy of the vehicle into heat taken away by the cooling system when the vehicle on a long downhill journey. The braking torque of conventional hydraulic retarder is modulated by adjusting the liquid filling rate, which leads to slow response and difficult control. In this paper, a new kind of magnetorheological (MR) fluid hydraulic retarder is designed by replacing the traditional transmission oil with MR fluid and arranging the excitation coils outside the working impellers. The braking torque can be controlled by the fluid viscosity of MR fluid with the variation of magnetic field. Compared with the traditional hydraulic retarder, the system has the advantages of fast response, easy control and high adjustment sensitivity. So the braking torque can be adjusted rapidly and accurately by a slightly change of magnetic field To find out the influence of the magnetic field on the braking torque of the proposed MR fluid retarder. The fluid dynamics model of the MR fluid in the principle prototype and the magnetic-braking torque model have been established based on the one-dimensional beam theory. Further, different magnetic field distribution has been discussed and the braking torque characteristics under various magnitude and direction of magnetic field has been studied. Finally, the control laws of the magnetic field on the braking torque has been summarized, and the optimal arrangement of the magnetic field has been determined. Research shows that both of the direction and magnitude of the magnetic field affect the braking torque, and the braking torque decreases with the growing of the circumferential magnetic field but increases with the growing of the axial magnetic field; the circumferential magnetic field has better adjustment capacity on braking torque control and can be the optional arrangement of the magnetic field. This study provides a theoretical basis for the magnetic field layout and the design of the control system for the MR fluid hydraulic retarder.