Design of a cost-effective and highly controllable heat-exchanger network (HEN) has drawn a great deal of attention for years. One of the key issues in such a design is how to effectively minimize undesirable disturbance propagation in a network with minimum cost increment. Design options in this regard include the derivation of a superior network structure and the selection of bypasses associated with heat exchangers. A unique system modeling approach is developed to predict disturbance propagation and to reject disturbances using bypasses, A novel mathematical representation scheme for a HEN is introduced to facilitate system analysis and design. A relative gain-array approach is extended to the analysis of nonsquared systems. In addition, an iterative design procedure is introduced to determine optimal bypass locations and nominal fractions for complete disturbance rejection, while economic penalty reaches the minimum. The efficacy of the model-based approach is demonstrated by designing three HENs where bypasses are optimally placed, and the control schemes are simultaneously developed.