This paper addresses the numerical simulation of mixed-mode crack propagation in Functionally Graded Materials (FGMs) by means of eXtended Finite Element Method (XFEM), endowed with elastic and toughness properties which gradually vary in space. The method allows to follow crack paths independently of the finite element mesh, this feature is especially important for FGMs, since the gradation of the mechanical properties may lead to complex propagation paths also in simple symmetric tests. Each step of crack growth simulation consists of the calculation of the mixed-mode stress intensity factor by means of a non-equilibrium formulation of the interaction integral method, determination of the crack growth direction based on a specific fracture criterion. A specific fracture criterion is tailored for FGMs based on the assumption of local homogenization of asymptotic crack-tip fields in FGMs. The present approach uses a user-defined crack increment at the beginning of the simulation. Crack trajectories obtained by the present numerical simulation agree well with available experimental results for FGMs. The computational scheme developed here serve as a guideline for fracture experiments on FGM specimens (e.g. initiation toughness and R-curve behavior).