The theory of density separation in a rotating ferrofluid assumes that the efficiency and precision of separation depend only on the properties of the ferrofluid and on the rotational speed of the fluid. In view of frequently disappointing results it has become apparent that a refinement of the theory is needed. It has been shown in this study that by including the hydrodynamic drag acting on particles to be separated, the net-point density differed from the value determined from the existing simple model. Inclusion of the hydrodynamic interaction also introduced a strong dependence of the cut-point density on particle size. It has also been found that, under the conditions commonly used in the Magstream separator, separation of particles smaller than approximately 3 mm does not obey the original model of the process. Also, the precision of separation has been found to depend on particle size and the position of a particle within the separator.