With the accelerated accumulation of genomic sequence data, there is a pressing need to develop computational methods and advanced bioinformatics infrastructure for reliable and large-scale protein annotation and biological knowledge discovery. The Protein Information Resource (PIR) provides an integrated public resource of protein informatics to support genomic and proteomic research. PIR produces the Protein Sequence Database of functionally annotated protein sequences. The annotation problems are addressed by a classification-driven and rule-based method with evidence attribution, coupled with an integrated knowledge base system being developed. The approach allows sensitive identification, consistent and rich annotation, and systematic detection of annotation errors, as well as distinction of experimentally verified and computationally predicted features. The knowledge base consists of two new databases, sequence analysis tools, and graphical interfaces. PIR-NREF, a non-redundant reference database, provides a timely and comprehensive collection of all protein sequences, totaling more than 1,000,000 entries. iProClass, an integrated database of protein family, function, and structure information, provides extensive value-added features for about 830,000 proteins with rich links to over 50 molecular databases. This paper describes our approach to protein functional annotation with case studies and examines common identification errors. It also illustrates that data integration in PIR supports exploration of protein relationships and may reveal protein functional associations beyond sequence homology.