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Abstract The three-dimensional incompressible magnetohydrodynamic (MHD) system with only vertical dissipation arises in the study of reconnecting plasmas. When the spatial domain is the whole space $$\mathbb R^3$$, the small data global well-posedness remains an extremely challenging open problem. The one-directional dissipation is simply not sufficient to control the nonlinearity in $$\mathbb R^3$$. This paper solves this open problem when the spatial domain is the strip $$\Omega := \mathbb R^2\times [0,1]$$ with Dirichlet boundary conditions. By invoking suitable Poincaré type inequalities and designing a multi-step scheme to separate the estimates of the horizontal and the vertical derivatives, we are able to establish the global well-posedness in the Sobolev setting $H^3$ as long as the initial horizontal derivatives are small. We impose no smallness condition on the vertical derivatives of the initial data. Furthermore, the $H^3$-norm of the solution is shown to decay exponentially in time. This exponential decay is surprising for a system with no horizontal dissipation. This large-time behavior reflects the smoothing and stabilizing phenomenon due to the interaction within the MHD system and with the boundary.