In recognition of the trend toward functional illiteracy, this study developed and evaluated a criterion-referenced functional literacy test for use in diagnosis and evaluation of Miami-Dade Community College English students. The instrument was pilot-tested on 135 composition students in the fall of 1976, then revised after item analysis and administered to 239 students in eighteen English composition classes in the winter term, 1977. Students also responded to the Nelson-Denny Reading Test (Form C). Subsequent scores were compared with the functional literacy scores and English course grades, using Pearson's r correlation coefficient. Results showed a correlation of 0.6045 between the functional literacy test scores and the Nelson-Denny, and a 0.4367 with course grades. Each of these correlations were higher than that between the Nelson-Denny and grades (0.4237). The test items represent reading skills required in daily life, such as telephone listings, thus demonstrating the value of reading. The study points to the need for real-life skills development and competency-based education. The original and revised versions of the instrument are appended. (RT)