The aim of this thesis is to design a kilowatt three-phase step-down rotary transformer for a permanent magnet DC motor. The permanent magnet DC motor has an on-rotor drive system, and therefore requiring a power supply that can transfer power to its drive unit without mechanical contact. The rotary transformer has a detached magnetic coupling structure that qualifies it as a potential method for the wireless power transfer. This thesis studies the rotary transformer as a static device, focusing on its core loss. By using a transient finite element analysis of COMSOL Multiphysics and an iron loss prediction model, the rotary transformer was optimized in terms of efficiency and power density for the on-rotor drive system through proper material selection and geometry exploration. After this, a mechanical design, which based on a literature review of the influences of manufacturing processes on electrical steels, was proposed for realizing the core fabrication and the rotary transformer assembly. The results show that the rotary transformer can step down 400 V/50 Hz three-phase voltage to 13.15V in a Delta-wye connection and output 1.17kW power over an air-gap of 0.3mm with 95.94% overall efficiency. The proposed mechanical design enables the transformer to minimize the core loss and the manufacturing cost. Without using resonant inductive coupling, this transformer design simplifies the power supply for the motor, thereby decreasing the motor manufacturing and maintenance cost.