This paper presents an optimal design of a direct-drive permanent magnet synchronous generator for a smallscale wind energy conversion system. An analytical model of a small-scale grid-connected wind energy conversion system is presented, and the effects of generator design parameters on the payback period of the system are investigated. An optimization procedure based on genetic algorithm method is then employed to optimize four design parameters of the generator for use in a region with relatively low wind-speed. The aim of optimization is minimizing the payback period of the initial investment on wind energy conversion systems for residential applications. This makes the use of these systems more economical and appealing. Finite element method is employed to evaluate the performance of the optimized generator. The results obtained from finite element analysis are close to those achieved by analytical model.