This paper addresses the facility layout problem in multi-bay environments, where the bays are connected at one or both ends by an inter-bay material handling system. In most previous studies, the main concern is to allocate facilities or departments to the bays whose widths are fixed. In this research, we suggest the efficient models that provide the optimal layout solution under flexible bay width environments. We also suggest a mathematical model that provides the optimal solution using two-way facility allocation approach instead of one-way allocation technique. This paper also shows the approach of TABU search to the assignment and layout design of the departments. The results generated from TABU search are compared to the result from the mathematical model. Models are developed using mixed integer programming for various test problems and solved by CPLEX.