“Functionally graded materials” (FGMs) are becoming more popular owing to merits in their thermos-mechanical behaviour and performance. However, designing the systems made of FGM, considering the practical conditions such as thermal conditions, corrosive environments, manufacturing difficulties and manufacturing defects are still evolving. Present work is aimed at reviewing different design and modelling approaches suitable specifically to rotor systems made of “functionally graded” materials. Though research is picking up in this area, limited studies have been reported on FG rotors. A step-by-step concise information has been provided on every aspect of FGM related to rotor systems, which includes brief history of FGM, literature review of fabrication methods, applications of FGM, material modelling due to gradation of materials over the cross section of rotor, temperature variant material properties because of temperature distribution, analytical and finite element methods available to analyse rotor systems subjected dynamic loads, modelling and analysis of defects such as effect of corrosion, porosity and cracks in dynamic behaviour of rotor systems.