Background: There has been little evaluation or development of nurse observation charts on psychiatric in-patient units since they were first introduced. Aim: We aimed to develop a new nursing chart that adds a functional and contextual assessment of the observed behaviour. We describe its initial evaluation in an in-patient setting. Method: A member of the staff coded a participant's behaviour as either an instance of an individual's daily life problem; or an improvement; or a non-clinically relevant behaviour. We evaluated the charts in 14 in-patients and compared the coding of the behaviour against that of one of the investigators. Results: After brief training the inter-rater agreement resulted in Kappa = 0.496 with p < .001. Removal of a rating of neutral behaviours resulted in a higher Kappa = 0.546 with p < .001. Conclusions: The inter-rater reliability was only moderate for the Functional Analytical Nurse Observation Charts. Frequent training and support from management and therapy staff is required to maintain a psychologically informed environment and observation in an in-patient setting. An area for further research is to explore the impact that a FANOC has on staff satisfaction and an individual's experience of care, and whether it can assist in determining mediators of change before an improvement in symptoms.