Permanent magnet (PM) machines have attracted considerable attention, due to high power factor and high torque density. This paper proposes a dual-winding PM machine (DWPMM) with magnetic gear effect, where the stator is filled with different pole-pairs dual-winding. The operating principle of the proposed machine are analyzed firstly. In addition, the decoupled mechanism of different pole-pairs for dual-winding and the high-efficiency utilization principle of harmonic magnetic fields are studied. The design method and optimization of DWPMM are investigated. Finally, the comparative investigations of PMSM, single-winding PM machine and DWPMM are carried out. The results show that the fundamental component and predominant harmonic can be utilized for producing electromagnetic torque efficiently. The proposed DWPMM owns the merits of high torque density and high utilization of PM material.