The accurate prediction of ligand binding residues from amino acid sequences is important for the automated functional annotation of novel proteins. In the previous two CASP experiments, the most successful methods in the function prediction category were those which used structural superpositions of 3D models and related templates with bound ligands in order to identify putative contacting residues. However, whilst most of this prediction process can be automated, visual inspection and manual adjustments of parameters, such as the distance thresholds used for each target, have often been required to prevent over prediction. Here we describe a novel method FunFOLD, which uses an automatic approach for cluster identification and residue selection. The software provided can easily be integrated into existing fold recognition servers, requiring only a 3D model and list of templates as inputs. A simple web interface is also provided allowing access to non-expert users. The method has been benchmarked against the top servers and manual prediction groups tested at both CASP8 and CASP9.