The functional behavior of a consumer electronic product is nearly all expressed with human-machine interaction (HMI) tasks. Although physical prototyping and computer aided design (CAD) software can show the appearance of the product, they cannot properly reflect its functional behavior. In this paper, we propose an approach to virtual prototyping (VP) that incorporates HMI functional simulation into virtual reality techniques in order to enables users to capture not only the realistic look of a consumer electronic product but also its functional behavior. We adopt state transition methodology to capture the HMI functional behavior of the product into a state transition chart, which is later used to construct a finite state machine (FSM) for the functional simulation of the product. The FSM plays an important role to control the transition between states of the product. We have developed a VP system based on the proposed approach. The system receives input events such as mouse clicks on buttons and switches of the virtual prototype model, and it reacts to the events based on the FSM by activating associated activities. The system provides the realistic visualization of the product and the vivid simulation of its functional behavior using head-mounted displays (HMD) and stereo speakers. It can easily allow users to perform functional evaluation and usability testing. A case study about the virtual prototyping of an MP3 player is given to show the usefulness of the proposed approach.