A cycloidal speed reducer employing gears with permanent magnets acting as teeth is described. The magnets, which have their axes radially oriented in both the orbiting gear and the fixed internal gear, are inserted in holes drilled in nonmagnetic rims without protruding from the cylindrical exposed surfaces. Because the orbiting gear is not restrained radially, it contacts the fixed gear and rolls on its inner surface. A normal force is developed at the contact point between the gears to balance the magnetic attraction and the centrifugal force of the orbiting gear. The friction available due to this normal force increases the transmission’s torque capacity, which is further increased by elimination of the gap between the gears. Also, the radial load on the supporting orbiting gear bearing is eliminated. A prototype with a reduction ratio of 26 is being tested.