Many proteins consist of distinctive domains that can act independently or cooperatively to achieve a unique function. As these domains evolve from a naturally existing repertoire of functional domains, this implies that domain organization is an intrinsic element involved in building the complex structure and function of proteins. Thus, identifying functional domains would appear to be critical to the elucidation of questions related to protein evolution, folding, and the engineering of hybrid proteins for tai- lored applications. However, the simple application of "Lego-like assembly" to the engineering of hybrid proteins is an oversimplification, as many hybrid constructs lack structural stability, usually due to unfavorable domain contacts. Thus, directed evolution, along with computational studies, may help to engineer hybrid proteins with improved physico-chemical properties. Accordingly, this paper introduces several approaches to functional hybrid protein engineering that potentially can be used to create modulators of gene transcription and cell signaling, and novel biosensors to analyze biological functions in vivo.