This paper proposes a time-domain method to calculate the fault response in multiterminal dc (MTdc) grids and the performance of hybrid dc breakers. The proposed method, based on traveling waves: 1) provides a sound representation of fault performance by considering all created traveling waves; 2) introduces a new approach to estimate the reflection coefficients; and 3) provides an approximation of the worst case fault location. Then, based on the analytical results, three parameters of the hybrid dc circuit breaker, i.e., current limiting reactor, arrester rated voltage, and time delay are optimally selected with respect to maximum overcurrent, maximum overvoltage, fault clearance time, and energy absorption in arresters through multiobjective optimization. Accuracy and performance of the proposed method are evaluated and verified by time-domain simulation studies in the power systems computer aided design (PSCAD)/electromagnetic transients including DC (EMTDC) environment using frequency-dependent models. The results confirm reasonable accuracy of the proposed fault performance calculation and represent a further step towards optimized design of hybrid dc circuit breakers.