The objective of this research is to design a reconfigurable virtual environment, which can be reconfigured directly by the user or by using real time engineering data. The proposed reconfigurable virtual environment architecture is intended to improve flexibility and usability in a range of virtual environment applications. This research proposes a novel hybrid approach that relies on the concept of the integration and composition of the reconfiguration strategy with the process of designing virtual environment. It binds various reconfiguration rules with virtual objects in the virtual environment. Using this hybrid approach, an architecture of reconfigurable virtual environment has been established. The reconfigurable virtual environment provides a modular open system architecture with a set of extension interfaces, which have been implemented for communicating with different system components to realise data exchange in the reconfigurable virtual environment. A novel interface, which connects the virtual environment to the real environment, has been developed to facilitate communication and reconfiguration between them in real time. It can be used for virtual testing and visualisation of engineering applications, where users can interactively evaluate synthetic prototypes using YEs. An architecture, which can be used for design of a reconfigurable virtual environment has been developed. This architecture of the reconfigurable virtual environment integrates five system components, a virtual environment, data acquisition system, VE database and management system, mapping system between virtual and real environment, and the reconfigurable virtual environment application interface. An integrated development platform has been developed to realise communication between the virtual and the real environment. A reconfigurable virtual environment prototype has been implemented, which realises reconfiguring the virtual environment based on real time data, and allows hardware in the loop to be used.