Recycling of plastics always plays an important role in keeping our environment better and safe. With the rise in usage of plastics and industrialization, the need for recycling the plastics has become a big business and is getting bigger. This thesis work was done for a company called Rapid Granulator AB, which works with the recycling of plastics as a big trade in Sweden. Like all the industries across the globe are trying to be economical in every way, Rapid Granulator AB wanted to develop an economical design of their high quality granulating knife. For achieving the economical design, they wanted to study the behaviour of the rotating knife during the process of producing plastic granules. The granulator cutting process was simulated and numerical analysis was done on the rotating knife of a plastic granulator machine by using the finite element code ABAQUS with 3D stress elements to find out the critical stresses and forces acting on the rotating knife. The bolt preload was applied by Abaqus/Standard, and the results of implicit analysis were imported to Abaqus/Explicit for the impact analysis where the flow of stresses on the rotating knife during the impact with materials were simulated and studied. The study was done on knife models of different thickness to see if the thickness of the current knife model can be reduced. Analysis were done also on a knife model assembly with a double sided cutting edge knife to see if the knife model can be used to its full extent. The simulation models and analysis results were given to the company to develop a more economical knife model.