In this paper a Lyapunov functional determination method for a linear neutral system with both lumped and distributed time delay is formulated and solved. A form of a Lyapunov functional is assumed and a computing method of its coefficients is given. The Lyapunov functional is constructed for a given time derivative which is calculated on a trajectory of a neutral system with both lumped and distributed time delay. The presented method gives analytical formulas for the Lyapunov functional coefficients. An example illustrating the application of discussed theory is presented. c⃝ 2015 International Association for Mathematics and Computers in Simulation (IMACS). Published by Elsevier B.V. All rights reserved.