Nowadays, with the increased interest in applications dealing with high-power medium-voltage conversion, there is a strong need to master the design of medium-frequency transformers, which are one of the key components of modern DC transformers. The paper presents the design and development of a 1 MW , 5 kHz core-type transformer prototype, which combines oil-immersed windings, realized as hollow copper conductors with internal deionized water cooling, and nanocrystalline magnetic core material. The design is achieved with the help of a model-based optimization tool, built around elaborate analysis and modeling of medium-frequency transformer specific phenomenon concerning its electrical operation. Moreover, the paper discusses some technical challenges connected to the prototype realization.