Function design is an important method for high-level innovation, and it is important for corporations to forecast product evolution rapidly and effectively from function angle. Three laws of function organization and eight laws of function improvement are presented to discover radically appearance of new functions and improvement of existing functions. The directions of function evolution are confirmed by function forecasting, and the function evolutionary path is described by function evolution tree. The rationality is evaluated by degree of ideality. The product innovation process model based on function evolution is proposed by integrating the above contents, which provides a systematic approach to product innovation from functional design angle. A design example for innovation of Chinese medicine demonstrates the proposed method is feasible.