In this paper, the effect of soil disturbance caused by installation of prefabricated vertical drains (PVDs) on the rate of consolidation is studied by two-dimensional finite element analysis. A transition zone lying between the highly disturbed smear and the undisturbed zones is considered in the analysis. The hydraulic conductivity in the transition zone is assumed to vary linearly from a low value in the smear zone to the original in situ value in the undisturbed zone. The analysis uses the actual band shape of the PVD and the rectangular shape of the unit cell. A parametric study is carried out to investigate the effects of the degree of soil disturbance, the size of the smear and the transition zones, the PVD spacing and the mandrel size and shape. Design guidelines, where the smear and transition zones are replaced by an expanded smear zone producing the same effect, are provided so that existing analytical solutions considering only the smear zone can be used for analysis and design. A comparison with experimental results shows that consideration of the transition zone is important for correct estimation of the degree of consolidation.