The block-localized wavefunction (BLW) approach is an ab initio valence bond (VB) method incorporating the efficiency of molecular orbital (MO) theory. It can generate the wavefunction for a resonance structure or diabatic state self-consistently by partitioning the overall electrons and primitive orbitals into several subgroups and expanding each block-localized molecular orbital in only one subspace. Although block-localized molecular orbitals in the same subspace are constrained to be orthogonal (a feature of MO theory), orbitals between different subspaces are generally nonorthogonal (a feature of VB theory). The BLW method is particularly useful in the quantification of the electron delocalization (resonance) effect within a molecule and the charge-transfer effect between molecules. In this paper, we extend the BLW method to the density functional theory (DFT) level and implement the BLW-DFT method to the quantum mechanical software GAMESS. Test applications to the pi conjugation in the planar allyl radical and ions with the basis sets of 6-31G(d), 6-31+G(d), 6-311+G(d,p), and cc-pVTZ show that the basis set dependency is insignificant. In addition, the BLW-DFT method can also be used to elucidate the nature of intermolecular interactions. Examples of pi-cation interactions and solute-solvent interactions will be presented and discussed. By expressing each diabatic state with one BLW, the BLW method can be further used to study chemical reactions and electron-transfer processes whose potential energy surfaces are typically described by two or more diabatic states.