<PAGE>
 
                          SCHEDULE 14A INFORMATION
           Proxy Statement Pursuant to Section 14(a) of the Securities
                    Exchange Act of 1934 (Amendment No.  )

 
Filed by the Registrant [X]
 
Filed by a Party other than the Registrant [_]
 
Check the appropriate box:
 
[_] Preliminary Proxy Statement       [_] Confidential, for Use of the
                                          Commission Only (as permitted by
                                          Rule 14a-6(e)(2))
 
[X] Definitive Proxy Statement
 
[_] Definitive Additional Materials
 
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

 
                       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):
 
[X] No fee required

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
 
    (1) Title of each class of securities to which transaction applies:

        ________________________________________________________________________

    (2) Aggregate number of securities to which transaction applies:

        ________________________________________________________________________
 
    (3) Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
        filing fee is calculated and state how it was determined):

        ________________________________________________________________________

    (4) Proposed maximum aggregate value of transaction:

        ________________________________________________________________________

    (5) Total fee paid:

        ________________________________________________________________________
 
[_] Fee paid previously with preliminary materials.

[_] 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.
 
    (1) Amount Previously Paid:

        ________________________________________________________________________
 
    (2) Form, Schedule or Registration Statement No.:

        ________________________________________________________________________
 
    (3) Filing Party:

        ________________________________________________________________________
 
    (4) Date Filed:

        ________________________________________________________________________

<PAGE>
 
                       PARAMETRIC TECHNOLOGY CORPORATION

                             128 TECHNOLOGY DRIVE
                               WALTHAM, MA 02154



                   NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

                        TO BE HELD ON FEBRUARY 12, 1998

                                        
     The Annual Meeting of Stockholders of Parametric Technology Corporation, a
Massachusetts corporation (the "Company"), will be held at the offices of the
Company, 128 Technology Drive, Waltham, MA 02154 on Thursday,   February 12,
1998 at 9:00 a.m., local time, to consider and act upon the following matters:

     1. To elect two Class II directors to serve for the ensuing three years.

     2. To transact such other business as may be in furtherance of or
        incidental to the foregoing.

     Stockholders of record at the close of business on December 17, 1997 will
be entitled to vote at the meeting or any adjournment thereof.  The stock
transfer books of the Company will remain open.


                                            By Order of the Board of Directors,


                                            MARTHA L. DURCAN, Clerk

Waltham, Massachusetts
J
anuary 7, 1998

          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 IN
ORDER TO ENSURE REPRESENTATION OF YOUR SHARES.  NO POSTAGE NEED BE AFFIXED IF
THE PROXY IS MAILED IN THE UNITED STATES.

                                        

<PAGE>
 
                       PARAMETRIC TECHNOLOGY CORPORATION

                             128 TECHNOLOGY DRIVE
                               WALTHAM, MA 02154

            PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS

                        TO BE HELD ON FEBRUARY 12, 1998

          This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Parametric Technology Corporation, a
Massachusetts corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on February 12, 1998 and at any adjournment of that
meeting (the "Annual Meeting").  All proxies will be voted in accordance with
the stockholders' instructions contained therein.  If no choice is specified,
proxies will be voted in favor of the election of the nominees named in this
Proxy Statement.  Any proxy may be revoked by a stockholder at any time before
its exercise by delivery of a written revocation and subsequently dated proxy to
the Clerk of the Company or by revoking the proxy in writing and voting in
person at the Annual Meeting.

          On December 17, 1997, the record date for the determination of
stockholders entitled to vote at the Annual Meeting, there were outstanding and
entitled to vote an aggregate of 128,284,154 shares of common stock of the
Company (the "Common Stock").  Stockholders are entitled to one vote per share
on all matters.

          The Company's Annual Report for the fiscal year ended September 30,
1997 is being mailed to stockholders with the mailing of this Notice and Proxy
Statement on or about January 7, 1998.

VOTES REQUIRED

          The affirmative vote of the holders of a plurality of the shares of
Common Stock represented and voting at the Annual Meeting is required for the
election of directors.

          Shares of Common Stock represented in person or by proxy at the Annual
Meeting (including shares which abstain from or do not vote with respect to one
or more of the matters presented at the Annual Meeting and broker non-votes, as
described below) will be tabulated by the inspectors of election appointed for
the Annual Meeting and will determine whether or not a quorum is present.  If a
broker holding stock in "street name" indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and voting at the Annual
Meeting with respect to the matter (a "broker non-vote").  Neither an abstention
nor a broker non-vote will be treated as voting on a matter requiring a
plurality of the shares represented and voting.  Accordingly, abstentions and
broker non-votes have no effect on the voting for the election of directors.

<PAGE>
 

PRINCIPAL STOCKHOLDERS


    The following table sets forth certain information, as of October 31, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock based upon information provided to the
Company; (ii) each director and nominee for director; (iii) each executive
officer named in the Summary Compensation Table; and (iv) all directors and
executive officers of the Company as a group.


<TABLE>
<CAPTION>
 
                                        Number of Shares              Percentage of Common
                                        Beneficially Owned/(1)(2)/       Stock Outstanding/(3)/
                                        ------------------             --------------------     
<S>                                     <C>                            <C>
  Janus Capital Corporation /(4)/            13,141,825                       10.27%
     100 Fillmore Street                                            
     Denver, Colorado 80206-4923                                    
                                                                    
  Putnam Investments, Inc. /(5)/             10,985,976                        8.59%
     One Post Office Square                                         
     Boston, MA 02109                                               
                                                                    
  Robert N. Goldman                              11,250                           *
                                                                    
  Donald K. Grierson                              1,250                           *
                                                                    
  Oscar B. Marx, III /(6)/                       45,250                           *
                                                                                   
  Michael E. Porter                              74,250                           *
                                                                                   
  Noel G. Posternak                              51,250                           *
                                                                                   
  Steven C. Walske/(7)/                         921,500                           *
                                                                                   
  C. Richard Harrison/(8)/                      654,904                           *
                                                                                   
  Michael E. McGuinness/(8)/                    191,686                           *
                                                                                   
  Edwin J. Gillis                               154,379                           *
                                                                                   
  John D. McMahon/(8)/                          135,321                           * 
                                                                    
  All directors, nominees for          
  director and executive officers      
  as a group (14 persons)                     2,320,675                        1.80%
</TABLE>

________________ 

*   Less than 1% of outstanding shares of Common Stock.

(1) The inclusion herein of any shares deemed beneficially owned does not
    constitute an admission of beneficial ownership of those shares. Unless
    otherwise indicated, each stockholder referred to above has sole voting and
    investment power with respect to the shares listed.

                                       2

<PAGE>
 
(2)   The amounts listed include the following shares of Common Stock that may
      be acquired on or prior to December 30, 1997 through the exercise of
      options: Mr. Goldman, 11,250 shares; Mr. Grierson, 1,250 shares; Mr. Marx,
      41,250 shares; Mr. Porter, 64,250 shares; Mr. Posternak, 41,250 shares;
      Mr. Walske, 200,000 shares; Mr. Harrison, 488,700 shares; Mr. McGuinness,
      133,100 shares; Mr. Gillis, 150,500 shares; Mr. McMahon, 119,918 shares;
      and all directors and executive officers as a group, 1,327,842 shares.

(3)   For purposes of determining the percentage of Common Stock outstanding,
      the number of shares deemed outstanding is 127,936,236 shares outstanding
      as of October 31, 1997 and any shares subject to options held by the
      person or entity in question that are exercisable on or prior to December
      30, 1997.

(4)   Janus Capital Corporation ("JCC") has filed a Securities and Exchange
      Commission Schedule 13G reporting the above stock ownership as of May 12,
      1997, a copy of which has been sent to the Company.  Stock reported as
      being beneficially owned by JCC consists of stock held in managed
      portfolios of several registered investment companies, to which JCC
      assumes the role of investment advisor or sub-advisor. JCC shares voting
      power and investment power with respect to all shares reported above, and
      JCC expressly disclaims beneficial ownership of all such stock.

(5)   Putnam Investments, ("PI") has filed a Securities and Exchange Commission
      Schedule 13G reporting the above stock ownership as of January 30, 1997, a
      copy of which has been sent to the Company.  Stock reported as being
      beneficially owned by PI consists of stock held in client accounts of
      subsidiaries of PI that are registered investment advisors.  PI and its
      subsidiaries share voting power with respect to 715,110 shares and share
      investment power with respect to 10,985,976 shares. PI expressly disclaims
      beneficial ownership of all such stock.

(6)   4,000 shares are held by the O.B. Marx, III Revocable Trust.

(7)   115,000 shares are held by the Walske-Longtine Foundation.

(8)   The amounts listed include the following shares of Common Stock owned by
      the named person jointly with his or her spouse: Mr. Harrison, 4,304
      shares; Mr. McGuinness, 206 shares; and Mr. McMahon, 15,403 shares.



ELECTION OF DIRECTORS


     The Company's Board of Directors is divided into three classes with
staggered three-year terms.  There are currently three Class I directors, two
Class II directors and two Class III directors, whose terms expire,
respectively, at the 2000, 1998 and 1999 Annual Meetings of Stockholders (in all
cases subject to the election and qualification of their successors and to their
earlier death, resignation or removal).  At each Annual Meeting of Stockholders,
directors are elected for a term of three years to succeed those directors whose
terms then expire.  The two Class II directors elected at the Annual Meeting
will be elected to serve until the 2001 Annual Meeting of Stockholders (subject
to the election and qualification of their successors and to their earlier
death, resignation or removal).

     THE PERSONS NAMED IN THE ENCLOSED PROXY WILL VOTE TO ELECT MICHAEL E.
PORTER AND STEVEN C. WALSKE AS CLASS II DIRECTORS, UNLESS AUTHORITY TO VOTE FOR
THE ELECTION OF EITHER OF THE NOMINEES IS WITHHELD BY MARKING THE PROXY TO THAT
EFFECT.  Each of the nominees is currently a Class II director of the Company.

     Each of the nominees has indicated his willingness to serve, if elected;
however, if any nominee should be unable or unwilling to stand for election,
proxies may be voted for a substitute nominee designated by the Board of
Directors.


     The table on the following page sets forth, for each nominee as a Class II
director and for each director of the Company whose term continues after the
Annual Meeting, his name and age, his positions and offices with the Company,
his principal occupations and business experience for the past five years, the
names of other publicly-held companies of which he is a director, the year since
which he has served as a director of the Company, and the year his term as a
director of the Company will expire.

                                       3

<PAGE>
 

<TABLE> 
<CAPTION> 
                Name, Age, Principal Occupation,                               Director     Term
              Business Experience and Directorships                             Since      Expires
              -------------------------------------                            --------    -------
<S>                                                                            <C>         <C> 
NOMINEES FOR CLASS II DIRECTORS:

 Michael E. Porter, age 50                                                       1995        1998
   Professor at Harvard Business School since 1973;  director of
   Thermo Quest Corporation, Alpha Beta Technologies, Inc., and
   Falcon Drilling Corporation.

 Steven C. Walske, age 45                                                        1986        1998
   Chairman of the Board of Directors of the Company since August
   1994;  Chief Executive Officer of the Company since December
   1986;  President of the Company from December 1986 to August 1994;
   director of Synopsys, Inc., Video Server, Inc., and Object Design Inc.

CONTINUING DIRECTORS:
<CAPTION> 
                    CLASS I DIRECTORS
<S>                                                                            <C>         <C> 
 Donald K. Grierson, age 63                                                      1987        2000
   Chief Executive Officer and President of ABB Vetco Gray, Inc.,
   an oil services business, since May 1991;
   director of Alpha Technology, Inc.
 
 Oscar B. Marx, III, age 59                                                      1995        2000
   Chief Executive Officer and President of TMW Enterprises, an
   autoparts business, since July 1995;  Chief Executive Officer and
   President of Electro - Wire Products, Inc., an electrical distribution
   company, from June 1994 to July 1995;  Vice President -
   Automotive Components Group of Ford Motor Company from
   January 1988 to June 1994;  director of Tesma International.

 Noel G. Posternak, age 61                                                       1989        2000
   Senior Partner in the law firm of Posternak, Blankstein & Lund, L.L.P.
   since 1980.

<CAPTION> 
                    CLASS III DIRECTORS
<S>                                                                            <C>         <C> 
 C. Richard Harrison, age 42                                                     1994        1999
   President and Chief Operating Officer of the Company since August
   1994;  Senior Vice President of Sales and Distribution of the Company
   from September 1991 to August 1994.

 Robert N. Goldman, age 48                                                       1991        1999
   Chief Executive Officer and President of Object Design Inc., a software
   developer since November 1995;  Chairman of the Board of Trinzic Corp.,
   a software developer, from June 1986 to August 1995;  Chief Executive
   Officer of Trinzic Corp. from June 1986 to October 1992;
   director of Intersolv, Inc., SystemSoft Corporation, Citrix Systems and
   Object Design Inc.
</TABLE>
 

                                       4

<PAGE>
 
BOARD AND COMMITTEE MEETINGS


     The Board of Directors held six meetings during the fiscal year ended
September 30, 1997. Each director attended at least 75% of the aggregate of the
total number of meetings of the Board of Directors and of other meetings held by
all committees of the Board of Directors on which he then served.

     The Board of Directors has an Audit Committee which meets with the
Company's independent accountants and reports on such meetings to the Company's
Board of Directors. The Audit Committee reviews the performance of the
independent accountants in the annual audit and in assignments unrelated to the
audit, reviews fees of the independent accountants, discusses the Company's
internal accounting control policies and procedures and considers and recommends
the selection of the Company's independent accountants. The Audit Committee met
five times during the fiscal year ended September 30, 1997. The fiscal 1997
Audit Committee members were Messrs. Grierson, Marx and Porter (Chairman). The
current members of the Audit Committee are Messrs. Marx, Porter (Chairman), and
Posternak.

     The Board of Directors has a Compensation Committee which provides
recommendations to the Board of Directors regarding executive and employee
compensation and administers the Company's bonus programs, the Company's 1987
Incentive Stock Option Plan (the "1987 Option Plan"), the 1997 Incentive Stock
Option Plan (the "ISO Plan"), the 1997 Nonstatutory Stock Option Plan (the "NSO
Plan"), and the 1991 Employee Stock Purchase Plan.  The Compensation Committee
met twice during the fiscal year ended September 30, 1997.  The fiscal 1997
Compensation Committee members were Messrs. Goldman (Chairman) and Posternak.
Messrs. Goldman (Chairman) and Posternak also constituted the Officers' Stock
Option Committee, which grants stock options under the 1987 Option Plan and the
ISO Plan to employee directors and officers subject to Section 16 (collectively
"Section 16 Officers") of the Securities Exchange Act of 1934, as amended.  The
Officers' Stock Option Committee met five times during the fiscal year ended
September 30, 1997.  The current members of both the Compensation Committee and
the Officers' Stock Option Committee are Messrs. Goldman (Chairman) and
Grierson.



DIRECTOR COMPENSATION


     During the fiscal year ended September 30, 1997, directors who were not
employees of the Company received the following directors' fees in consideration
of their services as directors of the Company:  an annual retainer in the amount
of $10,000 and $2,000 per Board of Directors meeting attended, as well as
reimbursement of travel expenses.  Members of the Audit Committee of the Board
of Directors received a fee of $1,000 per meeting of the Audit Committee
attended.  Members of the Compensation Committee of the Board of Directors
received a fee of $1,000 per meeting of the Compensation Committee attended.
Directors who are also employees of the Company do not receive any compensation
for their services as directors of the Company.


     Under the Company's 1996 Director Stock Option Plan (the "1996 Director
Plan"), which superseded the 1992 Director Stock Option Plan (the "1992 Director
Plan"), non-qualified stock options to purchase 20,000 shares (subject to future
adjustment for stock splits and similar capital changes) of Common Stock are
automatically granted to each outside director at the time of initial election
to the Board of Directors at an annual meeting or otherwise.  In addition,
immediately following the Annual Meeting of Stockholders each year, each outside
director continuing in office will automatically be granted options to purchase
5,000 shares (subject to future adjustment for stock splits and similar capital
changes) of Common Stock.  Accordingly, options to purchase 5,000 shares of
Common Stock were automatically granted to Messrs. Goldman, Grierson, Marx,
Porter, and Posternak on February 13, 1997.  The options become exercisable in
four equal annual installments commencing one year following the date of grant,
but only if the option holder is a director on that anniversary date.  Options
have a term of ten years and an exercise price equal to the fair market value of
the Common Stock on the grant date, which will be the closing price of the
Company's Common Stock as reported by the Nasdaq Stock Market on the date of
grant.

                                       5

<PAGE>
 

                      COMPENSATION OF EXECUTIVE OFFICERS

     The following table provides certain information for the fiscal years ended
September 30, 1997, 1996 and 1995 concerning compensation paid to or accrued for
the Company's Chief Executive Officer and the other four most highly compensated
executive officers who were serving as executive officers of the Company on
September 30, 1997 and whose salary and bonus for fiscal year 1997 exceeded
$100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                           
                                                                             Long-Term Compensation                
                                                                             ----------------------
                                                                                     Awards               
                                                  Annual Compensation        ----------------------     All Other 
                                                -----------------------         Shares Underlying        Compen- 
Name and Principal Position               Year  Salary($)/(1)/ Bonus($)/(2)/    Options(#)/(3)(4)/     sation($)/(5)/
- ---------------------------               ----  ---------      --------      ----------------------    -------------- 
<S>                                       <C>    <C>           <C>           <C>                       <C>
Steven C. Walske                          1997   345,000        385,000               600,000               4,750
  Chairman of the Board                   1996   330,000        700,000               300,000               3,167
  of Directors and Chief                  1995   300,000        500,000               600,000               4,620
  Executive Officer                                                                                      
                                                                                                         
C. Richard Harrison                       1997   290,000        385,000               600,000               4,750
  President and Chief                     1996   275,000        700,000               300,000               3,167
  Operating Officer                       1995   250,000        500,000               600,000               3,968
                                                                                                         
Michael E. McGuinness/(6)/                1997    60,000        575,239               200,000               5,096
  Former Executive Vice President         1996    60,000        538,628               220,000               3,000
  of Research & Development               1995    60,000        498,362               150,000               2,990
  and Product Marketing                                                                                  
                                                                                                         
Edwin J. Gillis                           1997   250,000        225,000               200,000               4,750
  Executive Vice President of             1996   250,000        300,000               150,000               3,167
  Finance and Administration,             1995         0              0               300,000                   0
  Chief Financial Officer and Treasurer                                                                  
                                                                                                         
John D. McMahon                           1997    53,923        326,025               200,000               2,500
  Executive Vice President of             1996    50,000        264,452               111,000               2,500
  World Wide Sales                        1995    50,000        189,841                28,000               1,938
</TABLE>

- ----------------

(1)   Salary includes amounts deferred pursuant to the Parametric Technology
      Corporation 401(k) Savings Plan.

(2)   Amounts shown, except for those discussed below relating to Messrs.
      McGuinness and McMahon, are the awards made under the Company's incentive
      plans, which amounts are earned and accrued during the fiscal years
      indicated and paid subsequent to the end of each fiscal year.  $372,239 of
      the amount shown in Fiscal Year 1997 and all amounts shown for Fiscal
      Years 1996 and 1995 for Mr. McGuinness are comprised of sales commissions
      based on revenue. Mr. McGuinness became entitled to receive awards under
      the Company's incentive plans beginning in the second quarter of Fiscal
      Year 1997 (with awards to be pro-rated accordingly). Prior to such date,
      Mr. McGuinness was not entitled to receive awards under the Company's
      incentive plans. All amounts shown for Mr. McMahon are comprised of sales
      commissions based on revenue and Mr. McMahon is not entitled to receive
      awards under the Company's incentive plans.

(3)   Amounts shown for Fiscal Year 1996 include stock options granted on
      October 2, 1996, which are correspondingly not included in Fiscal Year
      1997 figures.

                                       6

<PAGE>
 
(4)   Amounts shown are adjusted to reflect the one-for-one stock dividend
      declared by the Company on February 8, 1996 which became effective
      February 29, 1996.

(5)   Amounts shown are the Company's matching contributions made under the
      Parametric Technology Corporation 401(k) Savings Plan.

(6)   Mr. McGuinness resigned his position as Executive Vice President of 
      Research & Development and Product Marketing effective November 13, 1997.
      He will remain with the Company in the role of Senior Sales Consultant.


                      FISCAL YEAR 1997 STOCK OPTION GRANTS

     The following table provides information regarding options granted under
the Company's stock option plans for the fiscal year ended September 30, 1997 to
the executive officers named in the Summary Compensation Table.


<TABLE>
<CAPTION>
                                                  Individual Grants
                              ------------------------------------------------------------
                               Number of                                                       Potential Realizable Value
                                Shares        Percentage of Total                                at Assumed Annual Rates
                              Underlying        Options Granted      Exercise                     of Stock Price Appreciation
                                Options         to Employees for     Price Per   Expiration           for Option Term/(3)/
Name                         Granted(#)/(1)/  Fiscal Year(%)/(2)/     Share($)     Date           5%($)/(4)/      10%($)/(4)/
- ----                         ----------       --------------        ----------  ----------        ----------      -----------
<S>                          <C>              <C>                   <C>          <C>              <C>             <C>
Steven C. Walske              300,000             4.35%                48.00        5/15/07        9,056,083       22,949,891
                              300,000             4.35%               44.125        9/30/07        8,324,993       21,097,166
                                                                                               
C. Richard Harrison           300,000             4.35%                48.00        5/15/07        9,056,083       22,949,891
                              300,000             4.35%               44.125        9/30/07        8,324,993       21,097,166
                                                                                               
Michael E. McGuinness         100,000             1.45%                48.00        5/15/07        3,018,694        7,649,964
                              100,000             1.45%               44.125        9/30/07        2,774,998        7,032,389
                                                                                                                
Edwin J. Gillis               100,000             1.45%                48.00        5/15/07        3,018,694        7,649,964
                              100,000             1.45%               44.125        9/30/07        2,774,998        7,032,389
                                                                                                                
John D. McMahon               100,000             1.45%                48.00        5/15/07        3,018,694        7,649,964
                              100,000             1.45%               44.125        9/30/07        2,774,998        7,032,389
</TABLE>

 

(1)   All options granted to the named executive officers are exercisable in
      four equal annual installments, commencing one year after the date of
      grant.  The exercise price of each option is at least 100% of the fair
      market value of the Company's Common Stock on the date the option was
      granted. The exercise price may be paid in cash or, subject to certain
      limitations for shares previously acquired upon exercise of options, in
      shares of Common Stock, or in a combination of cash and shares.  Pursuant
      to employment agreements, the options held by the named executive officers
      become exercisable in full upon a "change in control" of the Company (as
      described under the section entitled "Employment Agreements") or, for
      Messrs. Walske and Harrison only, upon the individual's death or
      disability, and the options held by Messrs. Walske and Harrison become
      exercisable for the number of shares for which they would have been
      exercisable had the optionee's employment continued for an additional year
      after the termination of the optionee's employment without "cause" or
      after a "change in status."

(2)   For the fiscal year ended September 30, 1997, the Company granted options
      under the 1987 Option Plan, ISO Plan and NSO Plan to its employees and
      consultants to purchase a total of 6,898,000 shares of Common Stock
      (excluding Fiscal 1996 options granted on October 2, 1996) and canceled
      options to purchase 1,569,919 shares of Common Stock.

                                       7

<PAGE>
 
(3)   The dollar amounts under these columns are the result of calculations at
      the 5% and 10% appreciation rates set by the Securities and Exchange
      Commission and, therefore, are not intended to forecast possible future
      appreciation, if any, in the price of the Common Stock.  No gain to the
      optionees is possible without an increase in the price of the Common
      Stock, which will benefit all stockholders proportionately.

(4)   In order to realize the potential values over the ten year option term set
      forth in the 5% and 10% columns of this table, the per share price of the
      Common Stock at the end of the option term would be as follows:


       Date of   Exercise Price        Prices at:      Percentage Increases at: 
       -------   --------------      --------------    ----------------------- 
        Grant     per Share ($)        5%      10%          5%       10%
       -------   --------------      -----  -------       -----    ------
       5/15/97        48.00          78.19   124.50        63%      159%
       9/30/97       44.125          71.87   114.45        63%      159%


    AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND FY-END OPTION VALUES
                                        

          The following table sets forth information regarding stock options
exercised by the named executive officers during fiscal 1997 and the value of
in-the-money unexercised options held by them as of September 30, 1997.


<TABLE>
<CAPTION>
                                                            Number of Shares     Value of Unexercised
                                                         Underlying Unexercised  In-the-Money Options
                                                         Options at FY-End (#)    at FY-End($)/(2)/
                           Shares                        ----------------------  --------------------
                         Acquired on        Value             Exercisable/           Exercisable/
         Name             Exercise    Realized ($)/(1)/      Unexercisable          Unexercisable
- -----------------------  -----------  -----------------  ----------------------  --------------------
<S>                      <C>          <C>                <C>                     <C>
Steven C. Walske           330,000      10,327,612             175,000/               3,331,250/
                                                              1,200,000                8,103,125
                                                                            
C. Richard Harrison        250,000       9,862,810             463,700/              10,516,216/
                                                              1,250,000                9,712,500
                                                                            
Michael E. McGuinness      152,000       6,523,041              93,100/               1,514,206/
                                                                490,000                2,360,156
                                                                            
Edwin J. Gillis             37,000       1,049,585             138,000/               1,582,000/
                                                                475,000                2,100,000
                                                                            
John D. McMahon             42,332       1,703,779              82,168/               2,092,196/
                                                                332,000                  972,062   
</TABLE>

 
- -----------
(1) Market value of the underlying shares on the date of exercise less the
    option exercise price.

(2) Market value of shares covered by in-the-money options on September 30,
    1997, less the option exercise price.  Options are in-the-money if the
    market value of the shares covered thereby is greater than the option
    exercise price.

                                       8

<PAGE>
 
R
EPORT OF THE COMPENSATION COMMITTEE


          The Compensation Committee of the Board of Directors is composed of
two outside directors.  The two outside directors also serve as the Officers'
Stock Option Committee to grant stock options to Section 16 Officers.  The
compensation for the Company's executive officers is set by the Board of
Directors, after consideration of the Compensation Committee's recommendations.

Compensation Objectives

          The basic philosophy underlying the Company's compensation programs is
to align executive compensation with increases in stockholder value.  Several
key objectives are reflected within this basic philosophy, one of which is to
enable the Company to attain its annual market penetration and financial
targets.  Another key objective is to ensure that a major portion of each
executive's cash compensation is linked to significant improvements in the
Company's financial performance.  The third key objective is to make it possible
for the Company to attract, retain and reward executives who are responsible for
leading the Company in achieving or exceeding corporate performance goals.

Compensation Deductibility

          Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), imposes a limit on tax deductions for annual compensation in excess of
one million dollars paid by a corporation to its chief executive officer and the
other four most highly compensated executive officers of the corporation.  This
provision excludes certain forms of "performance based compensation," including
options granted under the 1987 Option Plan and the ISO Plan, from the
compensation taken into account for the purposes of that limit. The Committee
believes that, although it is desirable for executive compensation to be tax
deductible whenever in the Committee's judgment that would be consistent with
the objectives pursuant to which the particular compensation is paid, the
Company should compensate its executive officers fairly in accordance with the
guidelines discussed in this report and not be unduly limited by the anticipated
tax treatment.  Accordingly, the total compensation paid to an executive officer
in any year may exceed the amount that is deductible.  The Compensation
Committee will continue to assess the impact of Section 162(m) of the Code on
its compensation practices and determine what further action, if any, is
appropriate.

Executive Compensation Programs

          The Company's executive compensation programs, which contain no
special perquisites, consist of three principal elements:  base salary, cash
bonus and stock options.  The Company's objective is to emphasize incentive
compensation in the form of bonuses and stock option grants, rather than base
salary.  The Board of Directors sets the annual base salary for executives after
consideration of the recommendations of the Compensation Committee. Prior to
making its recommendations, the Compensation Committee reviews historical
compensation levels of the executives, evaluations of past performance and
assessments of expected future contributions of the executives.  In making the
determinations regarding base salaries, the Company considers generally
available information regarding salaries prevailing in the industry but does not
utilize any particular indices.

          The Company maintains incentive plans (the "IPs") under which
executive officers (including the Chief Executive Officer), other than the
officers participating in sales activities, are paid cash bonuses subsequent to
the end of each fiscal year.  The executive officers who do not participate in
the IPs are paid a commission based on revenue. The bonuses under the IPs are
dependent primarily on the Company's financial performance and achievement of
corporate objectives established by the Board of Directors prior to the start of
each fiscal year.

          The IPs for fiscal 1997 set forth three performance factors including,
for each participating officer, earnings per share and revenue.  The third
factor for two of the participating officers (including the Chief Executive
Officer) was based upon the number of software seats licensed, and for the
remaining officers not participating in sales activities, on other individual
performance goals.  Three different target levels were established for each
performance factor and a gross target bonus corresponding to each of the three
target levels was set.  A weight was then assigned to each of the performance
factors and the actual bonus earned was calculated using a formula which weighed
the three performance factors.  If the Company failed to meet the minimum
profitability target for fiscal 1997, the executives would not have been
eligible to receive a cash bonus.  

                                       9

<PAGE>
 
The various elements of the bonus calculation formula were set by the Board of
Directors, after consideration of the Compensation Committee's recommendation.

          Total compensation for executive officers also includes long-term
incentives offered by stock options, which are generally provided through
initial stock option grants at the date of hire and periodic additional stock
option grants.  Stock options serve as compensation and are instrumental in
promoting the alignment of long-term interests between the Company's executive
officers and stockholders due to the fact that executives realize gains only if
the stock price increases over the fair market value at the date of grant and
the executives exercise their options.  In determining the amount of such
grants, the Officers' Stock Option Committee evaluates the job level of the
executive, responsibilities to be assumed in the upcoming fiscal year,
contributions of each executive to the overall success of the Company and
accordingly to the Company's market value, the opportunity presented by the
current price of the Company's Common Stock to provide the executive with long-
term incentives to remain at the Company, and the awards made to each such
officer in prior years relative to the Company's overall performance.  It has
been the Company's practice to fix the exercise price of options, which
generally become exercisable in equal annual installments over a period of four
years commencing one year after the date of grant, at 100% of the fair market
value on the date of grant.  Therefore, the long-term value realized by
executives through option exercises can be directly linked to the enhancement of
stockholder value.

Chief Executive Officer Compensation

          The Chief Executive Officer's performance was evaluated, and his
compensation determined, in accordance with the factors described above
applicable to executive officers generally.  For the fiscal year ended September
30, 1997, the Chief Executive Officer earned a cash bonus of $385,000, which
represented 53% of his total cash compensation (base salary plus cash bonus).
This amount reflects the increases in earnings per share of 38% (excluding
nonrecurring charges), revenue of 35%, and the number of software seats licensed
of 30% over the prior year.

          For the fiscal year ended September 30, 1997, the Officers' Stock
Option Committee granted to the Chief Executive Officer options to purchase
600,000 shares of the Company's Common Stock.  The amount of the grant reflects
the senior position held by the Chief Executive Officer within the Company, the
results achieved by the Company during fiscal 1997, and the significant
contributions anticipated to be made by the Chief Executive Officer in the
future.



                                              Compensation Committee

                                              Robert N. Goldman, Chairman
                                              Noel G. Posternak



CERTAIN BUSINESS RELATIONSHIPS

     On May 15, 1997, Michael E. Porter entered into a consulting arrangement
with the Company whereby Mr. Porter will participate in and aid in the
development of a series of top management seminars to be sponsored by the
Company.  Mr. Porter, for these services, received an option to purchase 25,000
shares of the Company's Common Stock at a price of $48.00 per share, the fair
market value of the Common Stock on the date of grant.



COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

          Noel G. Posternak is a Senior Partner in the law firm of Posternak,
Blankstein & Lund, L.L.P., which firm has provided legal services to the Company
during the last fiscal year and may do so during the current fiscal year.


     Robert N. Goldman (Chairman) and Donald K. Grierson constitute both the
current Compensation Committee and Officers' Stock Option Committee of the Board
of Directors.  Steven C. Walske, the Company's Chairman and Chief Executive
Officer, serves on the Board of Directors of Object Design Inc., a software
development company whose Chief Executive Officer and President is Robert N.
Goldman.

                                       10

<PAGE>
 
Stock Performance Graph


          The Stock Performance Graph set forth below compares the cumulative
stockholder return on the Common Stock of the Company from September 30, 1992 to
September 30, 1997, with the cumulative total return of the Nasdaq (U.S.
Companies) Index and the Nasdaq Computer & Data Processing Index over the same
period.  The Stock Performance Graph assumes that the value of the investment in
the Company's Common Stock and each of the comparison groups was $100 on
September 30, 1992 and assumes the reinvestment of dividends.  The Company has
never declared a dividend on the Common Stock of the Company.  The stock price
performance depicted in the graph below is not necessarily indicative of future
price performance.


       COMPARISON OF CUMULATIVE TOTAL RETURN AMONG PARAMETRIC TECHNOLOGY
         CORPORATION, NASDAQ (U.S. COMPANIES) INDEX AND NASDAQ COMPUTER
                           AND DATA PROCESSING INDEX

                             [GRAPH APPEARS HERE]

                         9/30/92  9/30/93  9/30/94  9/29/95  9/30/96  9/30/97
                         -------  -------  -------  -------  -------  -------
Parametric Technology
  Corporation             $100     $173     $142     $263     $423     $378
Nasdaq (U.S. Companies)
  Index                    100      131      132      182      216      297
Nasdaq Computer & Data 
  Processing Index         100      119      133      212      263      356

                                       11

<PAGE>
 
EMPLOYMENT AGREEMENTS

    Agreement with Mr. Walske

    The Company has entered into an agreement with Mr. Walske which provides for
certain benefits for him in the event of a termination of his employment under 
certain circumstances and upon the occurrence of certain events. Under the 
agreement, in the event the Company elects to terminate Mr. Walske's employment 
(other than for "cause," as defined in the agreement), or effects a "change in 
status" of Mr. Walske (which, as defined in the agreement, includes a diminution
in title, responsibilities or compensation), Mr. Walske shall be entitled to 
receive (i) during the six-month period following such an event (or until such 
earlier date as he commences employment with another company), a salary at a 
rate equal to two times the highest annual salary (excluding bonuses) received 
by him in the prior six months, and (ii) provided he remains employed with the 
Company for such six-month period, a bonus equal to Mr. Walske's most recent 
fiscal year-end bonus. The agreement also provides that the outstanding options 
held by Mr. Walske under the Company's Option Plans shall become exercisable 
(i) in full upon a "change in control" of the Company, which in general includes
(a) any person becoming the beneficial owner of 50% or more of the voting power 
of the Company, (b) a change in a majority of the Company's directors, or (c) 
the approval by the stockholders of a merger or consolidation in which the 
Company's stockholders do not have majority voting power of the surviving 
entity, a liquidation of the Company or a sale or disposition of all or 
substantially all of the Company's assets, or upon the death or disability of 
Mr. Walske, and (ii) for such number of shares of Common Stock for which they 
would have otherwise become exercisable had Mr. Walske's employment continued 
for one year following a termination of his employment without "cause" or a 
"change in status" of Mr. Walske.

    Agreement with Mr. Harrison

    The Company has entered into an agreement with Mr. Harrison which provides 
for certain benefits for him in the event of a termination of his employment 
under certain circumstances and upon the occurrence of certain events. The 
benefits provided under this agreement are substantially similar to those 
provided to Mr. Walske discussed above under this section except for the 
following: in the event the Company elects to terminate the employment of Mr. 
Harrison  without "cause," or effects a "change in status" of Mr. Harrison, 
there is no provision for a bonus to be paid to Mr. Harrison.

    Agreements with Messrs. Gillis, McGuinness, and McMahon

    The Company has entered into agreements with Messrs. Gillis, McGuinness and 
McMahon which provide that (i) in the event the Company terminates the 
employment of the officer without "cause," he is entitled to receive, during the
six-month period following notice of termination (or until such earlier date as 
he commences employment with another company) a salary at a rate equal to the 
highest annual salary (excluding bonuses) received by him in the prior six 
months and (ii) in the event of a change in control of the Company, the 
outstanding options held by the officer under the Company's option plans shall 
become exercisable in full. Mr. McGuinness resigned his position as Executive 
Vice President of Research & Development and Product Marketing effective 
November 13, 1997. Mr. McGuinness' above mentioned agreement remains in effect 
except as superseded by a new agreement entered into in November 1997 under
which the Company (i) will continue to employ him as Senior Sales Consultant at 
an annual salary of $120,000 for a term which ends on November 30, 1998, or 
until his earlier commencement of full-time employment with another company, and
(ii) may terminate his employment only for "cause".


                                      12


<PAGE>
 
                INFORMATION CONCERNING INDEPENDENT ACCOUNTANTS

    The Board of Directors has appointed the firm of Coopers & Lybrand L.L.P. to
serve as the Company's independent accountants for the fiscal year ending 
September 30, 1998.

    On November 17, 1995 the Board of Directors of the Company upon 
recommendation of its Audit Committee approved a change in the Company's 
independent accountants from Price Waterhouse LLP to Coopers & Lybrand L.L.P. 
effective for the fiscal year ended September 30, 1996. Price Waterhouse LLP 
served as the Company's independent accountants for fiscal years 1992 through 
1995. During these periods, the Company did not have any disagreements with 
Price Waterhouse LLP on any matter of accounting principles or practices, 
financial statement disclosure or auditing scope or procedure, nor did any 
reports issued by Price Waterhouse LLP contain an adverse opinion or a 
disclaimer of opinion, nor were such reports qualified or modified as to 
uncertainty, audit scope or accounting principles.

    Representatives of Coopers & Lybrand L.L.P. are expected to be present at 
the Annual Meeting. They will have the opportunity to make a statement if they 
desire to do so and will also be available to respond to appropriate questions 
from stockholders.

                                 OTHER MATTERS

    While the Notice of Meeting calls for transaction of such other business as 
may be in furtherance of, or incidental to, the matters described in the Notice,
the Board of Directors does not know of any other matters which may come before 
the Annual Meeting. However, if any other matters are properly presented to the 
Annual Meeting, it is the intention of the persons named in the accompanying 
proxy to vote, or otherwise act, in accordance with their judgment on such 
matters.

    All costs of solicitation of proxies will be borne by the Company. The 
Company's directors, officers and regular employees, without additional 
remuneration, may solicit proxies by telephone, telegraph and personal 
interviews. Brokers, custodians and fiduciaries will be requested to forward 
proxy soliciting material to the owners of stock held in their names, and the 
Company will reimburse them for their reasonable out-of-pocket expenses incurred
in connection with the distribution of proxy materials.

    Proposals of stockholders intended to be presented at the 1999 Annual 
Meeting of Stockholders must be received by the Company at its principal office 
in Waltham, Massachusetts not later than September 11, 1998 for inclusion in the
proxy statement for that meeting. In order to curtail controversy as to the date
on which a proposal was received by the Company, proponents should submit their 
proposals by Certified Mail-Return Receipt Requested.


                                        By Order of the Board of Directors,


                                        MARTHA L. DURCAN, Clerk

January 7, 1998

    THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. 
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND 
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL 
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE 
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.

                                      13

<PAGE>
 
 
                       PARAMETRIC TECHNOLOGY CORPORATION
 
                 PROXY FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
 
                               FEBRUARY 12, 1998
 
  The undersigned, having received notice of and the Proxy Statement relating
to the 1998 Annual Meeting of Stockholders to be held on February 12, 1998, at
9:00 a.m. at 128 Technology Drive, Waltham, MA 02154, and revoking all prior
proxies, hereby appoint(s) Edwin J. Gillis and Martha L. Durcan, and each of
them acting singly, with full power of substitution, as proxies to represent
and vote on behalf of the undersigned, as designated below, all shares of
common stock, $ .01 par value per share, (the "Common Stock") of Parametric
Technology Corporation (the "Company") which the undersigned would be entitled
to vote if personally present at the 1998 Annual Meeting of Stockholders and
any adjournment or adjournments thereof (the "Annual Meeting"). IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING.
 
                        (TO BE SIGNED ON REVERSE SIDE)
 
                                                                     -----------
                                                                     SEE REVERSE
                                                                         SIDE
                                                                     -----------

<PAGE>
 
[X]  PLEASE MARK YOUR
     VOTES AS IN THIS
     EXAMPLE.
 
                FOR        WITHHELD
Election of     [_]          [_]        NOMINEES: Michael E. Porter and 
directors                                         Steven C. Walske      


For, except vote withheld from the following nominee:
 
- --------------------------------------------------------



                                        This Proxy when properly executed will
                                        be voted in the manner directed herein
                                        by the undersigned stockholder. IF A
                                        CHOICE IS NOT SPECIFIED WITH RESPECT TO
                                        THE ABOVE PROPOSAL, THIS PROXY WILL BE
                                        VOTED FOR SUCH PROPOSAL. Attendance of
                                        the undersigned at the Annual Meeting
                                        will not be deemed to revoke this Proxy
                                        unless the undersigned shall revoke this
                                        Proxy in writing and shall vote in
                                        person at the Annual Meeting.

                                        EACH STOCKHOLDER SHOULD SIGN THIS PROXY
                                        PROMPTLY AND RETURN IT IN THE ENCLOSED
                                        ENVELOPE. THIS PROXY IS SOLICITED ON
                                        BEHALF OF THE BOARD OF DIRECTORS OF THE
                                        COMPANY.


SIGNATURE(S)                                               DATE
            -----------------------------------------------     ----------------

NOTE: Please sign name(s) exactly as appearing on your stock certificate. If
      shares are held jointly, each joint owner should personally sign. When
      signing as attorney, executor, administrator, trustee or guardian, please
      give full title as such. If a corporation, please sign full corporate name
      by President or other authorized officer. If a partnership, please sign in
      partnership name by authorized person.