This paper describes a simulation of a cutting flow mode of MR (Magneto-Rheological) fluid using DEM (Discrete Element Method). The authors have studied an encountered-type haptic interface using MR fluid for the application of a surgical simulator, which can allow an operator to sense cutting force by directly cutting the MR fluid with a surgical knife. To develop an advanced haptic interface with the MR fluid, a prediction of the behavior of ferromagnetic particles in the fluid and the forces applied to the knife in advance are required. Therefore, this paper realizes flow visualization of the MR fluid and develops a DEM simulator. The flow visualiation revealed that entire chain clusters of the particles draged into the direction of the knife movement while the part of the clusters were cut by the cutting edge of the knife in the knife insertion. When the knife was pulled out, the cut clusters remained their shapes and the particles did not remake the chain clusters around those areas even under the condition of the magnetic field. Besides, it was observed that the particles contacted with the side surfaces of the knife or the boundary walls sliped on the surfaces. The DEM simulation in this study introduces the effect of the knife movement in the fluid and the friction effect on the surfaces in addition to the conventional MR fluid model. The simulation results show that overall behaviour of the MR fluid can be reproduced.