This paper presents a new method of actuator fault detection based on the functional observer approach for a two‐stage chemical reactor with disturbance, parameter uncertainty, and time‐delay. The mechanism analysis method is used to model the system and the observer is designed. The exogenous disturbance can be decoupled completely from the error dynamic systems by letting some relevant constraints ensure the robustness of the residual generator. Stability conditions are obtained by using the Lyapunov–Krasovskii functional approach in the form of linear matrix inequalities (LMIs). Finally, simulation results are given to illustrate the effectiveness of the proposed method.