This paper presents a knowledge-based system, ‘EFDEX’, the Engineering Functional Design Expert, which was developed using an expert system shell, CLIPS 6.1, to perform intelligent functional design of engineering systems. On the basis of a flexible, causal and hierarchical functional modeling framework, we propose a knowledge-based functional reasoning methodology. By using this intelligent functional reasoning strategy, physical behavior can be reasoned out from a desired function or desired behavior, and inter-connection of these behaviors is possible when there is compatibility between the functional output of one and the corresponding functional requirement (e.g. driving input) of the next one. In addition, a complicated, desired function which cannot be matched with the functional output of any behavior after searching the object-oriented behavior base, will be automatically decomposed into less complex sub-functions by means of relevant function decomposition rules. An intelligent system for the functional design of an automatic assembly system provides an application of this intelligent design environment, and a demonstration of its methodology. In this paper, a knowledge-based functional representation scheme which integrates two popular AI representation techniques (object-oriented representation and rule-based representation) is also proposed as a prelude to a knowledge-based functional design system