Characterized by a complex contour profile involving arc, cycloid and involute, etc., the screw rotor is usually manufactured by a forming tool. The finished surface quality and efficiency of the screw rotor are determined by the cutting performance of the forming tool. However, the machining performance of the forming tool is closely related to the structure shape of cutting edge, which is then determined by the installation parameters of the forming tool. Therefore, to make the cutting performance of forming tool controllable, it is essential investigate the relationship between the cutting performance of the forming tool and its installation parameters at the design stage. In this paper, a novel installation parameter optimization design method of forming tool for screw rotor is presented. A parametric optimization program is designed to finalize the range of installation parameters satisfying the spatial meshing relation and machining equipment parameters. The profile characteristics of forming tool under different center distances and mounting angles have been investigated. For validation, several screw rotors were ground in experiments and the resulted profile errors were analyzed. The results show that the cost of precision grinding of screw rotor can be significantly reduced, without compromise of machining quality. As such, the proposed design method could serve as a promising platform to faciliate screw rotor manufacture.