This paper presents a parametric study on small-scale model to evaluate the reduction of earth pressure by using Geofoam as a compressible inclusion between retaining wall and backfill. The parameters considered for the study are thickness and density of Geofoam and surcharge load on backfill. The numerical simulation is done using Finite Difference software FLAC 3D. A field test simulation is also conducted for yielding and non-yielding 6 m high retaining wall. With the increase in thickness and decrease in the density of Geofoam the lateral earth pressure reduces. The displacement of the backfill toward the wall is increasing by using Geofoam leading to reduction of earth pressure and attaining active earth pressure condition. The use of Geofoam is observed to be effective in case of non-yielding retaining wall as compared to yielding retaining wall.