A pressure compensated valve (PC valve) is a type of flow control device that is a combination of a control orifice and a compensator (often called a hydrostat). The compensator orifice modulates its opening to maintain a constant pressure drop across the control orifice. In other words, the PC valve is so designed that the flow rate through the valve is governed only by the opening of the control orifice and is independent of the total pressure drop across the valve. Because of the high non-linearities associated with this type of valve, it is impossible, in practice, to design such a valve where the flow rate is completely unaffected by the pressure drop across the valve. In this paper, the effect of the non-linerities on the performance of the PC valve is investigated. First, a generic non-liner model of a PC valve is developed. Using this model, all possible operating conditions can be determined. Then a linearized model is developed and used to analyze the dynamic behavior of the PC valve. The model can then be used to optimize the design and operation of the valve for specific applications.