A shock absorber has a pressure tube with a piston assembly slidably disposed within the pressure tube and attached to a piston rod. The piston assembly divides the pressure tube into an upper working chamber and a lower working chamber. The piston assembly includes a compression and a rebound valve assembly. The piston assembly also includes a housing attached to the piston rod which defines a pressure chamber within which is slidably disposed a piston to define upper and lower fluid chambers. The pressure chamber is in communication with the upper working chamber through a passageway extending through the piston rod. The housing, piston and fluid chambers provide two stage damping in rebound and compression with a smooth transition between soft and firm damping.