UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant x

Filed by a Party other than the Registrant ¨

Check the appropriate box:

PARAMETRIC TECHNOLOGY CORPORATION

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of filing fee (Check the appropriate box):

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

PARAMETRIC TECHNOLOGY CORPORATION

140 KENDRICK STREET

NEEDHAM, MASSACHUSETTS 02494

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held on March 1, 2006

We will hold the Annual Meeting of Stockholders of Parametric Technology Corporation (“PTC”) at our offices, 140 Kendrick Street, Needham, Massachusetts 02494, on Wednesday, March 1, 2006 at 9:00 a.m., local time. At this year’s Annual Meeting, we will ask you to:

You may vote at the Annual Meeting if you were a PTC stockholder at the close of business on January 6, 2006. With the Proxy Statement, we are sending you PTC’s 2005 Annual Report to Stockholders, including our Annual Report on Form 10-K with our financial statements.

Needham, Massachusetts

January 18, 2006

Directions to our offices are as follows:

From the North:

Route 128 South to Exit 19B, to Highland Avenue. At the first traffic light, take a left onto Hunting Road. Left onto Kendrick Street. PTC entrance is on the right hand side.

From the South:

Route 128 North to Exit 18, right onto Great Plain Avenue. Right onto Greendale Avenue. Right onto Kendrick Street. PTC entrance is on the right hand side.

From either the East or West:

Mass Pike to Route 128 South to Exit 19B, to Highland Avenue. At the first traffic light, take a left onto Hunting Road. Left onto Kendrick Street. PTC entrance is on the right hand side.

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE, OR VOTE BY TELEPHONE OR ON THE INTERNET, IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE IS REQUIRED IF THE PROXY IS MAILED IN THE UNITED STATES.

TABLE OF CONTENTS

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PROXY STATEMENT FOR THE PARAMETRIC TECHNOLOGY CORPORATION

2006 ANNUAL MEETING OF STOCKHOLDERS

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

Why Did We Send You this Proxy Statement?

As a stockholder, you have the right to attend and vote at the Parametric Technology Corporation (PTC) 2006 Annual Meeting of Stockholders. If you attend the Annual Meeting, you may vote your shares directly. Whether or not you attend, you may vote by proxy, by which you direct another person to vote your shares at the meeting on your behalf. The PTC Board of Directors is soliciting your proxy to encourage your participation in voting at the meeting and to obtain your support for the proposals presented.

There are two parts to our proxy solicitation: this proxy statement and the enclosed voting instruction form (which is also called a “proxy card”). The proxy statement explains the proposals to be voted on at the Annual Meeting. You use the voting instruction form to authorize your shares to be voted as you wish.

We will begin mailing this proxy statement on January 18, 2006 to all stockholders entitled to vote. If you owned our common stock at the close of business on January 6, 2006, you are entitled to vote. On that date, there were 277,503,091 shares of common stock outstanding. Common stock is our only class of voting stock.

How Many Votes Do You Have?

You have one vote for each share of common stock that you owned at the close of business on January 6, 2006. Your proxy card or other voting instruction form indicates the number of shares you owned at the close of business on January 6, 2006.

How May You Vote by Proxy?

To vote, simply complete, sign and return the form before the meeting, and your shares will be voted as you direct. If you wish, in most cases you may vote by telephone or the Internet instead.

When you vote, you are giving your “proxy” to the individuals we have designated to vote your shares as you direct at the meeting. If you sign the form but do not make specific choices, they will vote your shares to:

If any matter not listed in the Notice of Meeting is properly presented at the Annual Meeting, they will vote your shares in accordance with their best judgment. At the time we began printing this proxy statement, we knew of no matters that needed to be acted on at the meeting other than as discussed in this proxy statement.

Whether you plan to attend the Annual Meeting or not, we urge you to complete, sign and date the enclosed voting instruction form and to return it promptly in the envelope provided. Returning the form will not affect your right to attend the Annual Meeting. If you wish to vote at the meeting despite having returned the form, see below under “May You Revoke Your Proxy” and “How May You Vote in Person.”

How May You Vote by Telephone or the Internet?

Instead of submitting your vote by mail on the enclosed voting instruction form, you may vote by telephone or the Internet. Please note that there may be separate telephone and Internet arrangements depending on whether

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you are a registered stockholder (that is, if you hold your stock in your own name) or you hold your shares in “street name” (that is, in the name of a brokerage firm or bank that holds your securities account). In either case, you must follow the procedures described on your voting instruction form.

In order to vote online or via telephone, have the voting instruction form in hand, and call the number or go to the website listed on the enclosed voting instruction form and follow the instructions. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly.

We encourage you to vote by the Internet. If you do so, please authorize us to deliver future annual reports and proxy statements to you by e-mail. This lowers costs and speeds delivery.

May You Revoke Your Proxy?

Yes. You may change your vote after you send in your voting instructions. A registered stockholder may revoke a proxy by following any of these procedures:

A holder of stock in street name must follow the procedures required by the brokerage firm or bank to revoke a proxy. You should contact that firm directly for more information on these procedures.

How May You Vote in Person?

If you attend the Annual Meeting and wish to vote in person, we will give you a ballot when you arrive. If your shares are held in street name, you must bring an account statement or letter from the brokerage firm or bank showing that you were the beneficial owner of the shares on January 6, 2006 in order to be admitted to the meeting. If you are not the holder of record, you will need to obtain a “legal proxy” from the holder of record in order to be able to vote at the Annual Meeting.

What Are the Votes Required? How Are They Affected by Abstentions and Broker Non-Votes?

The directors elected at the meeting will be those receiving the highest number of votes. Confirmation of the selection of PricewaterhouseCoopers LLP as our independent auditors may be approved by the affirmative vote of a majority of the votes cast. Accordingly, if you abstain from voting, or if your broker or bank does not vote on any proposal because it has not received instructions from you and does not have the authority to vote in its discretion (a broker non-vote), it will not count as a vote for or against a proposal.

Is Voting Confidential?

We keep all the proxies, ballots and voting tabulations confidential. The Inspectors of Election will forward to management any written comments that you make on the proxy card without providing your name.

What Are the Costs of Soliciting Proxies?

PTC will pay all the costs of soliciting proxies. In addition to mailing these proxy materials, our directors and employees may solicit proxies by telephone, fax or other electronic means of communication, or in person. We will reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you.

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Stockholders Sharing the Same Surname and Address.

In some cases, stockholders holding their shares in a brokerage or bank account who share the same surname and address and have not given contrary instructions receive only one copy of our annual report and proxy statement. This practice is designed to reduce duplicate mailings and save significant printing and postage costs as well as natural resources. In other cases, stockholders receiving multiple copies at the same address may wish to receive only one. If you would like to have additional copies of our annual report and/or proxy statement mailed to you, to receive separate copies of future mailings, or to receive only one copy if you now receive more than one, please submit your request to the address or phone number that appears on your voting instruction form.

How May You Obtain Our Annual Report on Form 10-K?

A copy of our Annual Report on Form 10-K for the year ended September 30, 2005 was included with this proxy statement. If you would like another copy, it is available on our website at www.ptc.com. We will also send you one without charge if you call (781) 370-5000, e-mail to IR@ptc.com, or write to:

Investor Relations

Parametric Technology Corporation

140 Kendrick Street

Needham, MA 02494-2714

Where Can You Find the Voting Results?

We will publish the voting results on our website at www.ptc.com following the Annual Meeting and in our Form 10-Q for the second quarter of fiscal 2006, which we will file with the Securities and Exchange Commission in May 2006.

Whom Should You Call if You Have any Questions?

If you have any questions about the Annual Meeting or your ownership of PTC common stock, please contact PTC Investor Relations by telephone at (781) 370-5000 or e-mail at IR@ptc.com.

DISCUSSION OF PROPOSALS

The first proposal on the agenda for the Annual Meeting is to elect two Class I directors for three-year terms beginning at this Annual Meeting and expiring at the 2009 Annual Meeting. For a description of the three classes of directors, see “Information About The Directors” beginning on page 5.

Upon the recommendation of the Nominating & Corporate Governance Committee, the Board of Directors has nominated two current directors—Donald K. Grierson and Oscar B. Marx, III—for new, three-year terms and recommends that you vote for their election. The recommendation that Messrs. Grierson and Marx be nominated is based on consideration of their individual credentials and experience, their exemplary prior service and attendance records as directors and board committee members, the numerous contributions that each has made to the work of the Board of Directors and its committees, and their expected future contributions. In the case of Mr. Grierson, this included his prior CEO experience and knowledge of important vertical industries in which PTC offers its products, including nearly 30 years of experience at General Electric, where upon his departure in 1985 he was Senior Vice President and Group Executive of the Industrial Electronics Business Group; his numerous contributions as a member of the Compensation Committee, including the re-design of our equity compensation program and the reduction of PTC’s stock options overhang; his role on the Nominating & Corporate Governance Committee, keeping PTC’s corporate governance practices up to date; and his 100% board and committee meeting attendance record over his current three-year term. In the case of Mr. Marx, this included his prior CEO and Board Chairman experience and his tenure at Ford Motor Company where in 1994 he

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retired as Vice President after 32 years of service; his role as PTC’s Audit Committee Financial Expert; his numerous contributions as the Chairman of the Audit Committee, including leading PTC’s Sarbanes-Oxley 404 Internal Controls assessment; and his nearly 100% (one absence over the three-year period) board and committee meeting attendance record over his current three-year term. The Nominating & Corporate Governance Committee’s process for selecting and evaluating director nominees is described under “Information About the Nominating Functions of the Nominating & Corporate Governance Committee” on page 21. There were no nominees for director proposed by PTC stockholders.

The following table contains background information about each of the nominees. For a description of their holdings of PTC stock, see “How Much Stock is Owned by Directors and Officers?” beginning on page 9.

The Board of Directors recommends that you vote FOR the election of Donald K. Grierson and Oscar B. Marx, III as Class I directors.

The second proposal on the agenda for the Annual Meeting is to confirm the selection by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP, an independent registered public accounting firm, as PTC’s independent registered public accounting firm for the fiscal year ending September 30, 2006. PricewaterhouseCoopers LLP served as our independent auditors for the fiscal year ended September 30, 2005. Further information about PricewaterhouseCoopers LLP appears under “Information about our Independent Registered Public Accounting Firm” on page 19. Although stockholder confirmation of the selection of PricewaterhouseCoopers LLP is not required by law or our by-laws, and this vote will not be binding on PTC, the Board of Directors believes that it is advisable to give stockholders an opportunity to provide guidance on this selection. If this confirmation is not received, the Board will request that the Audit Committee reconsider its selection of PricewaterhouseCoopers LLP.

The Board recommends that you CONFIRM the selection of PricewaterhouseCoopers LLP as PTC’s independent registered public accounting firm.

Other Matters

The Board of Directors does not know of any other matters to come before the meeting. However, if any other matters are properly presented to the Annual Meeting, the persons named in the accompanying voting instruction form will vote, or otherwise act, in accordance with their judgment on such matters.

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INFORMATION ABOUT THE DIRECTORS

Who Are Our Directors?

Our Board of Directors is divided into three classes with staggered three-year terms. There are currently two Class I directors, two Class II directors and three Class III directors, whose terms expire, respectively, at the 2006, 2007 and 2008 Annual Meetings of Stockholders. The Class I directors, who are described on pages 3 and 4, have been nominated for re-election at this Annual Meeting. The Class II and III directors will continue in office following the Annual Meeting. The following table contains information about each of the Class II and III directors. You will find information on director holdings of PTC stock in the section called “How Much Stock is Owned by Directors and Officers?” beginning on page 9.

Independence

All of our directors except Mr. Harrison (our Chief Executive Officer and President), and Mr. Porter (who has a consulting agreement with the Company as described below) are “independent directors” as defined in the Nasdaq National Market listing standards.

Certain Relationships and Transactions

Mr. Harrison and Paul J. Cunningham, PTC’s Executive Vice President, Worldwide Sales, are first cousins.

Howard Heppelmann, PTC’s Vice President – Indirect Sales Business Development, is the brother of James Heppelmann, our Executive Vice President and Chief Product Officer. Howard and James were co-founders of

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Windchill Technologies, Inc., which we acquired in connection with our acquisition of Computervision Corporation in 1998. For fiscal 2005, Howard Heppelmann received a salary of $150,000 and earned sales commissions of $160,668. Howard Heppelmann is also eligible to participate in PTC’s standard employee benefits packages, including receiving equity grants under PTC’s stock incentive plans.

Matthew Cohen, PTC’s Vice President—Customer Education, is the son of Barry Cohen, PTC’s Executive Vice President, Strategic Services and Partners. For fiscal 2005, Matthew Cohen received a salary of $117,538 and earned an incentive bonus of $49,558 based on educational products and services bookings and margin. Matthew Cohen is also eligible to participate in PTC’s standard employee benefits packages, including receiving equity grants under PTC’s stock incentive plans.

Cornelius F. Moses, PTC’s Executive Vice President and Chief Financial Officer, was an executive officer of Bradlees, Inc. within two years of its bankruptcy filing in January 2001.

Board Meetings and Attendance at the Annual Meeting

PTC’s Board currently schedules five regular meetings during each fiscal year, but will meet more often if necessary. The Board met eleven times during fiscal 2005. We expect that each director will attend the Annual Meeting of Stockholders each year, barring other significant commitments or special circumstances. All directors attended the 2005 Annual Meeting of Stockholders.

Communications with the Board

Stockholders may send communications to the Board of Directors in the manner described on the Investor Relations page of our website at www.ptc.com.

Committees of the Board

The Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating & Corporate Governance Committee, and the Corporate Development Committee.

The Audit Committee

The Audit Committee assists the board in fulfilling its oversight responsibilities for accounting and financial reporting compliance, including reviewing the financial information provided to the stockholders and others, PTC’s accounting policies, disclosure controls and procedures and internal accounting and financial controls, and the audit process. In undertaking these responsibilities, the Committee meets with management and with the independent auditor (including meeting privately, without PTC management present) to discuss our financial reporting policies and procedures and our internal control over financial reporting. The Committee reports on such matters to our Board of Directors. In addition, the Committee is directly responsible for the appointment (and where appropriate, replacement), evaluation and compensation of the work of the independent auditor. The Committee reviews the performance of the independent auditor in the annual financial statement audit and audit of the Company’s assessment of internal control over financial reporting, assesses the independence of the auditor, and reviews the auditor’s fees. At least once every three years, the Committee will evaluate the independent auditor’s tenure, the quality of its engagements and the associated costs to determine if rotation to a different independent auditor is advisable.

The Committee is also responsible for pre-approving audit and non-audit related services that may be performed by the independent auditor and for reviewing our internal control over financial reporting and disclosure controls.

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The Audit Committee operates under a written charter, which is available on the Investor Relations page of our website at www.ptc.com.

Messrs. Marx (Chairman), Goldman and Posternak currently serve as members of the Audit Committee. All committee members are “independent directors” under both SEC rules and the listing requirements of the Nasdaq National Market governing the qualifications of members of the Audit Committee, and none of them has ever been an employee of PTC or any subsidiary. During fiscal 2005, Oscar B. Marx, Chairman of the Audit Committee, qualified as an Audit Committee Financial Expert, as defined by the SEC.

The Audit Committee met ten times during fiscal 2005. The Committee’s report for 2005 appears on page 19.

The Compensation Committee

The Compensation Committee establishes the compensation levels for PTC’s executive officers (including granting equity awards to executive officers) and oversees employee compensation programs, including PTC’s bonus programs and its shareholder approved equity incentive and employee stock purchase plans. The Committee acts under a written charter, which is available on the Investor Relations page of our website at www.ptc.com. Each year, the Committee reports to you on executive compensation. The Committee’s report for fiscal 2005 appears on page 13.

Messrs. Goldman (Chairman) and Grierson currently serve as members of the Compensation Committee. Both Messrs. Goldman and Grierson qualify as “independent directors” under the Nasdaq National Market listing requirements. The Committee met six times during fiscal 2005.

The Nominating & Corporate Governance Committee

The Nominating & Corporate Governance Committee is appointed by the Board to assess Board membership, make recommendations regarding potential candidates for election to the Board of Directors and membership on committees of the Board of Directors, develop and recommend policies and processes regarding corporate governance matters and maintain a CEO succession plan in order to ensure continuity of leadership for PTC. The Committee acts under a written charter, which is available on the Investor Relations page of our website at www.ptc.com. Further information about the operation of the Committee appears on page 21.

Messrs. Posternak (Chairman), Goldman and Grierson currently serve as members of the Nominating & Corporate Governance Committee. All Committee members qualify as “independent directors” under the Nasdaq National Market listing requirements. The Committee met twice during fiscal 2005.

The Corporate Development Committee

The Corporate Development Committee, which was established during fiscal 2005, is appointed by the Board to evaluate corporate development opportunities, including mergers and acquisitions, and to assist management in developing strategies and processes regarding such initiatives. The Committee is authorized to approve transactions having a price below a threshold established by the Board from time to time. The Committee acts under a written charter, which is available on the Investor Relations page of our website at www.ptc.com.

Messrs. Porter (Chairman) and O’Donnell, each of whom has extensive business expertise (including in the area of corporate strategy), currently serve as members of the Corporate Development Committee. The Committee met twice during fiscal 2005.

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How We Compensate Our Directors

Information About Certain Insider Relationships

On July 28, 2005, we entered into an Amended and Restated Consulting Agreement with Michael E. Porter, one of our directors with whom we have had a consulting arrangement since 1995. The agreement amends and restates in its entirety our previous consulting agreement with Mr. Porter. Under the original consulting agreement, Mr. Porter participated in preparing and presenting a series of executive management seminars sponsored by us. Under the amended agreement, in addition to providing such executive management seminars from time to time, Mr. Porter will provide strategic planning sessions with our executives. In consideration for providing these strategic consulting services, we issued to Mr. Porter a one-time grant of 100,000 shares of restricted stock, the restrictions on which lapse in three equal annual installments beginning on July 28, 2006. In consideration of his services providing executive management seminars, we will pay him a fee of $15,000 for each executive management seminar in which he participates. During fiscal 2005, Mr. Porter did not participate in any executive management seminars and, accordingly, received no such fees.

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INFORMATION ABOUT PTC COMMON STOCK OWNERSHIP

Which Stockholders Own at Least 5% of PTC?

The following table shows all persons we know to be beneficial owners of at least 5% of PTC common stock as of November 30, 2005. “Beneficial owners” of PTC common stock are those who have the power to vote or to sell that stock. Our information is based in part on reports filed with the SEC by the firms listed in the table below. If you wish, you may obtain these reports from the SEC.

The footnotes for this table appear below the next table.

How Much Stock is Owned by Directors and Officers?

The following table shows the PTC common stock beneficially owned by PTC’s directors and the executive officers named in the Summary Compensation Table, as well as all current directors and executive officers as a group, as of November 30, 2005.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that our insiders—our directors, executive officers and 10%-or-greater stockholders—file reports with the SEC on their initial beneficial ownership of PTC common stock and any subsequent changes (in this case, “beneficial ownership” means a pecuniary interest in the shares).

Based on our review of all reports filed by our insiders, we believe that all of our insiders filed on a timely basis all reports required by Section 16(a) for fiscal 2005.

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INFORMATION ABOUT EXECUTIVE COMPENSATION

The tables on pages 11 through 13 show salaries, bonuses and other compensation paid for the last three fiscal years, including restricted stock awards granted in fiscal 2005, options exercised in fiscal 2005 and option values as of year-end fiscal 2005 for the Chief Executive Officer and our four other most highly compensated executive officers during fiscal 2005.

Summary Compensation Table

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