Prefabricated buildings, as an efficient and sustainable construction method, have garnered increasing attention in the industry. However, the complexity of engineering processes and human factors contribute to significant rework risks, which can adversely affect project schedules and quality. This study employs a system dynamics approach to analyze and optimize the prefabricated construction (PC) process, with a focus on mitigating rework risks. Through comprehensive modeling and empirical research, the study proposes several optimization strategies aimed at reducing rework and enhancing project outcomes. The findings indicate that addressing design module issues can significantly reduce production errors and quality defects in assembly components, thereby decreasing the likelihood of rework. Furthermore, optimizing construction techniques enhances efficiency and minimizes the need for adjustments during construction. Improved collaboration and communication within teams further enhance project management, reducing the potential for misunderstandings and errors. The implementation of these strategies not only accelerates project timelines and controls costs but also supports the sustainable development of the construction industry. This study underscores the critical importance of optimizing PC processes, offering innovative methodologies that effectively reduce rework risks, improve quality control, and elevate overall project performance. These insights provide valuable guidance for industry practitioners seeking to optimize construction outcomes and achieve greater efficiency and sustainability in their projects.