The Design Phase is where the product or service offering is created, and it is highly dependent on the selected feature set and the technologies identified in prior phases. Talking in generalities, a design effort applies its resources and strives to maximum an offering's reliability, compatibility and lifetime while making the offering as attractive and easy-to-use as possible. Often, it is helpful to have, as a design guide, a team-wide philosophy about how the offering will match up to and compel its market.

Design may consists of some combination of bottom-up and top-down tasks. Bottom-up tasks are appropriate for focused development of certain key features. Top-downs task are suitable for integrations or for designs requiring heavy system analysis. Checks against known standards and for market compatibility to ensure that the new product operates well for customers.

Hardware-based designs includes schematic capture and circuit board layout for the electronics, the generation of fabrication drawings for the mechanics, and planning for production test fixtures. Materials, components and assembly methods are chosen that simplify production and keep costs low. Software is optimized for the hardware platform and developed in an expedient, stepped manner.

For services such as web-based applications, design includes high-level architecting, leveraging existing technologies, designing pass-throughs to other services, and using a best practice programming approach to produce a quality product.

Any particular Design Phase may have unique considerations. For example, variants of a base design may be required for different markets or for expandability. Some features might be reserved as add-ons or for future releases. Back-up operations developed for critical missions, and so on.

The Design Phase almost always has as a milestone either a proof of concept (an "Alpha") or a prototype ("Beta"), either of which can be reviewed, evaluated and critiqued. It can have iterations to stabilize and fine-tune the more sophisticated designs.

Overlapping some portion of the Design Phase is the critical Testing Phase.