Large Language Models (LLMs) have demonstrated remarkable capabilities as powerful components in agentic systems, enabling sophisticated reasoning and complex task execution. However, current approaches to manually designing and optimizing agentic systems heavily rely on manual effort, limiting their adaptability and scalability. Recent work has explored the automated optimization of workflow designs. However, these approaches often overlook the crucial role of model capabilities and focus on single performance metrics, failing to address real-world deployment constraints. In this paper, we present AgentFactory, a framework that jointly optimizes both foundation models and workflow structures in agentic systems while considering multiple objectives including performance, cost, and efficiency. AgentFactory leverages advanced LLMs as optimizers to navigate the vast search space of possible configurations, employing a three-stage optimization pipeline to automatically discover effective combinations of fine-tuned models and optimized workflows. Through an iterative optimization process, our framework systematically explores and evaluates different agentic system designs, adapting to task-specific requirements while maintaining operational efficiency. We evaluate AgentFactory across eight benchmarks spanning five domains, including general reasoning, coding, mathematics, medicine, and finance. Our experiments demonstrate that AgentFactory consistently outperforms both manually designed methods and existing automated approaches, achieving an average improvement of 9.1% across all benchmarks, with particularly significant gains in domain-specific tasks (19.6% on MedQA and 18.7% on FinEval). These results establish AgentFactory as a promising approach for developing more capable and efficient agentic systems through automated optimization.