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 interconnection 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 subfunctions 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.