Diffusion-weighted MRI images acquired with multiple b-values have the potential to improve diagnostic accuracy by increasing the conspicuity of lesions and inflammatory activity with background suppression. Unfortunately, the inherently low signal-to-noise ratio (SNR) of DW-MRI reduces enthusiasm for using these images for diagnostic purposes. Moreover, lengthy acquisition times limit our ability to improve the quality of multi b-value DW-MRI images by multiple excitations acquisition and signal averaging at each b-value. To offset these limitations, we propose the Simultaneous Model Estimation and Image Reconstruction (SMEIR) for DW-MRI, which substantially improves the quality of multi b-value DW-MRI images without increasing acquisition times. Our model introduces the physiological signal decay model of DW-MRI as a constraint in the reconstruction of the DW-MRI images. An in-vivo experiment using 6 low-quality DW-MRI datasets of a healthy subject showed that SMEIR reconstruction of low-quality data improved SNR by 55% in the liver and by 41% in the kidney without increasing acquisition times. We also demonstrated the clinical impact of our SMEIR reconstruction by increasing the conspicuity of inflamed bowel regions in DW-MRI of 12 patients with Crohn's disease. The contrast-to-noise ratio (CNR) of the inflamed regions in the SMEIR images was higher by 12.6% relative to CNR in the original DW-MRI images.