A three-way water hydraulic pressure reducing valve (PRV) was developed in this paper for a test equipment in laboratory for adapting complex conditions. The designed PRV has a damping chamber with an orifice located at the spring chamber. Two types of throttles and orifice diameter were investigated through dynamic simulation and optimization, and their dimensions were determined and applied to the manufactured valve prototype. The static and dynamic performances of the valve were tested by experiments. At the preset pressure of 5.0 MPa, the outlet pressure variations for the pressure-reducing port and the relief port, are 0.73 MPa and 1.44 MPa, respectively, while the flow variation is up to 18.0 l/min. The experimental rising times and settling times of the PRV under the inlet pressure step for preset pressures of 5.0 MPa are 33.7 ms and 120.2 ms, respectively, and the overshoot is 3.76%. The test results at each preset pressure agree well with the simulation which verifies that the simulation model can be used to predict the dynamic performance of the PRV. The experimental results for the valve under flow step input conclude that it can work stably at small flow state. The research indicates that making the spring chamber a damping chamber by using an orifice is a feasible way to increase the pressure stability and the dynamic performance of the PRV. However, the damping effect of this structure is insufficient at high working pressure.