If a state observer does not exist, it is possible to design a functional observer. principally, this is also true for systems with unknown inputs (termed as disturbances). Necessary and sufficient conditions for the existence of disturbance decoupled functional observers for linear time-invariant systems are provided. A method for designing such observers is given. Analysis and design are based on a matrix pencil approach. The design can also he used to obtain functional observers for descriptor systems with or without unknown inputs.