Based on expanding the matrix fraction descriptionB(z)A‐1(z), whereA(z) andB(z) are matrix polynomials inz, into bilinear matrix continued fractions corresponding to the Schwarz form, a model reduction method is presented for discrete multi‐input multi‐output systems. Both frequency‐domain and time‐domain reduced‐order modeling procedures using the bilinear block Schwarz form are given. Examples for the construction of a bilinear block Schwarz form and its application to model reduction are also given.