The magnetostrictive actuator, with its unique characteristics such as high force, stiffness, large strain is potentially a new class actuator application such as fast tool servo, vibration control applications. But the performance of magnetostrictive actuator is highly dependent on preload, magnetic field intensity and thermal expansion. This paper presents the development of a magnetostrictive actuator and an experimental and analytical investigation of the temperature effect on the displacement characteristics of the developed magnetostrictive actuator. When the current applied to the excitation coil to supply the magnetic field to the magnetostrictive material, heat which effects thermal expansion is produced. Precision position control of magnetostrictive actuator is difficult caused by thermal strain. Therefore, magnetostrictive actuator is need of cooling system. In this paper, the development of a magnetostrictive actuator with built-in air cooling system which use compressed cold air and proper temperature and velocity of compressed cold air was studied by thermal analysis. Simulation results were verified by experiment, tracking performance improvement was achieved by eliminating thermal expansion.