The simplest method which has been used extensively for vibration analysis is the transfer matrix method introduced by Myklestad and was later extended by many researchers. The crude approximation results in considerable error on the predicted natural frequencies and to increase the accuracy the number of elements used in the analysis must be increased. In addition, numerical instability can occur as a result of matrix multiplication. Also the main disadvantage of the finite element method is the large computer memory requirements for complex systems. The new method proposed in this paper combines the transfer matrix and finite dynamic element techniques to form a powerful algorithm for vibration analysis of rotor system. It is shown that the accuracy improves significantly when the transfer matrix for each segment is obtained from finite dynamic element techniques.