In this paper, a double-stage movable tooth reducer with a cam wave generator is presented, which has a small axial size. The force, output torque, relative velocity, and meshing efficiency equations for the reducer are first deduced. Using these equations, the forces, output torque, and meshing efficiency for the reducer are investigated, and results show that periodic changes occur. The average output torque, meshing efficiency, and their fluctuation rates depend on the wave number of the center wheel. When the wave number of the center wheel is an odd number, the output torque and meshing efficiency have larger average values and lower fluctuation rates. A suitable combination of the speed ratios plus small wave amplitude of the sine curve can be used to reduce the torque fluctuation significantly.