You will probably need to create a second dataset. You can use your primary dataset, but chances are the departments are repeated over and over again (and in no particular order). You don't want all that in your drop-down list, you want a distinct list of departments.
Go to the data tab and create a new dataset (from the dataset: drop-down list, select <New Dataset...>). In the query string, you want to generate a distinct lists of departments. Something like this:
SELECT DISTINCT Department FROM
ORDER BY Department
Go into your Report > Report Parameters. For the available values, select "From Query". Pick the dataset name as the dataset, then the department field as both the value and label field. (You can do more complicated things one you get used to how it works).
Hit OK and preview your report. You should now have a drop-down list of departments.