Abstract: The ABR service class of ATM networks uses a feedback control mechanism to adapt to varying link capacities. The VS/VD technique offers the possibility to segment the otherwise end-to-end ABR control loop into separate loops. The improved feedback delay and the control of ABR traffic inside closed segments provide a better performance for ABR connections. This paper will present the use of classical linear control theory to model and develop an ABR VS/VD flow control algorithm. Discrete event simulation is used to analyze the behavior of the algorithm with respect to transient behavior and correctness of the control model. Linear control theory offers the means to derive correct choices of parameters and to assess performance issues, like stability of the system, during the design phase. The performance goals are a high link utilization, fair band-width distribution and robust operation in various environments, which are verified by discrete event simulations. The major contribution of this work is the use of analytic methods (linear control theory) to model and design an ABR flow control algorithm tailored for the special layout of a VS/VD switch, and the use of simulation techniques to verify the result.