Problems arising from application of the German functional approach to translation studies and practice have been under much discussion. It is maintained in this paper that they mainly result from the failure to have a holistic and comprehensive understanding of the approach and its key concepts, because attention has been focused on the similarity of different schools within the approach, while their differences have been largely neglected. Therefore based on the analysis of the essence of the approach and the relationship of the key ideas represented by its different schools, the present paper conducts a case study of misapplication of the approach in literary translation criticism. The study shows how the misapplication has led to the wrong conclusion and points out root causes for such misapplication.