This paper analytically derives the optimal third harmonic current to improve the output torque in five-phase surface-mounted permanent magnet (SPM) machines under the constraints of the same peak/rms value. The relationship between the output torque and the third harmonic current is established and its optimal value for maximizing the output torque is derived. It is found that the optimal third harmonic current is dependent on the ratio of the third harmonic back electromotive force (EMF) to the fundamental one but it is not 1/6 of the fundamental one as pulse width modulation in an inverter. In order to improve the output torque by increasing the fundamental and third harmonic winding factors and the third harmonic airgap flux density, the unequal width tooth and permanent magnet (PM) segmentation are employed in the 10-slot/8-pole five-phase SPM machine. The optimal unequal tooth dimensions and the number of PM segmentations are analyzed for maximizing the output torque. The airgap flux density, back EMF, cogging torque, and output torque of the machine with equal/unequal tooth width and unsegmented/segmented PM are compared. Finally, the experiments on the prototype 10-slot/8-pole PM machine with unequal tooth width and segmented rotor are given to verify the analytical and finite element analyses.