In squeeze mode, magnetorheological (MR) fluids exhibit a unique behaviour when compression load is applied. The MR fluids were assumed to experience fluid–particle separation phenomenon, where magnetic particles and carrier fluid were separated at some extent of compression. In this study, the establishment of this phenomenon has been carried out. A cyclic compression test was performed on hydrocarbon-based MR fluid, where a video camera was used to record the expelling fluid. Solidified samples of epoxy-based MR fluid were then prepared and the cured samples were sectioned, mounted and prepared for metallographic study. Images extracted from the recorded video have shown that there was a separation of carrier fluid during compression where a brighter colour of fluid was observed expelling from the testing region. Furthermore, analyses of the micrographs demonstrated the increment of the particle distribution along compression process. The separation process was responsible for the variability of particle volume fraction in order to achieve desirable stresses.