This paper presents a structure and architecture of an integrated simulation method (ISM) to meet the requirements of virtual factory engineering (VFE). Combining CAD, VR and discrete event simulation techniques, the ISM provides static and dynamic simulation functions for implementation of VFE throughout the lifecycle. The static simulation can be used to evaluate the factory layout. The dynamic simulation enables us to evaluate ergonomics of factory, process performance of production system, feasibility of production plan and operation of factory, and to train operators safely, which cover the whole VFE lifecycle. The principles of the key techniques of VFE, including virtual factory data management system (VFDMS), static and dynamic simulation, are also discussed. To demonstrate and validate the ISM, a case study has been carried out in an assembly factory.