Density-functional theory (DFT) is a computational quantum mechanical modelling method used in physics, chemistry and materials science to investigate the electronic structure (or nuclear structure) (principally the ground state) of many-body systems, in particular atoms, molecules, and the condensed phases. Using this theory, the properties of a many-electron system can be determined by using functionals, i.e. functions of another function. In the case of DFT, these are functionals of the spatially dependent electron density. DFT is among the most popular and versatile methods available in condensed-matter physics, computational physics, and computational chemistry.

DFT has been very popular for calculations in solid-state physics since the 1970s. However, DFT was not considered accurate enough for calculations in quantum chemistry until the 1990s, when the approximations used in the theory were greatly refined to better model the exchange and correlation interactions. Computational costs are relatively low when compared to traditional methods, such as exchange only Hartree–Fock theory and its descendants that include electron correlation. Since, DFT has become an important tool for methods of nuclear spectroscopy such as Mössbauer spectroscopy or perturbed angular correlation, in order to understand the origin of specific electric field gradients in crystals.

Despite recent improvements, there are still difficulties in using density functional theory to properly describe: intermolecular interactions (of critical importance to understanding chemical reactions), especially van der Waals forces (dispersion); charge transfer excitations; transition states, global potential energy surfaces, dopant interactions and some strongly correlated systems; and in calculations of the band gap and ferromagnetism in semiconductors. The incomplete treatment of dispersion can adversely affect the accuracy of DFT (at least when used alone and uncorrected) in the treatment of systems which are dominated by dispersion (e.g. interacting noble gas atoms) or where dispersion competes significantly with other effects (e.g. in biomolecules). The development of new DFT methods designed to overcome this problem, by alterations to the functional or by the inclusion of additive terms, is a current research topic. Classical density functional theory uses a similar formalism to calculate properties of non-uniform classical fluids.

Despite the current popularity of these alterations or of the inclusion of additional terms, they are reported to stray away from the search for the exact functional. Further, DFT potentials obtained with adjustable parameters are no longer true DFT potentials, given that they are not functional derivatives of the exchange correlation energy with respect to the charge density. Consequently, it is not clear if the second theorem of DFT holds in such conditions.