A functional simulator with watchpoint support includes a CPU having a first-level DMI cache, a watchpoint manager having a second-level DMI cache, an interconnect module, and a memory controller. The simulator is operated by a front-end tool. Watchpoints corresponding to a predetermined memory addresses are set by the front-end tool and stored as a watchpoint address list in the watchpoint manager. When a memory access request is received by the first-level DMI cache, after a failure to complete the memory access request, the CPU transmits the request to the watchpoint manager. The watchpoint manager searches for a memory address associated with the memory access request in the watchpoint address list. If a match is found, the watchpoint manager generates a watchpoint hit signal and notifies the front-end tool.