To survive the cut-throat competition in the manufacturing industry, many companies have introduced digital manufacturing technology. Digital manufacturing technology not only shortens the product development cycle times but also improves the precision of engineering simulation. However, building the virtual objects needed for a digital manufacturing environment requires skilled human resources; it is also costly and time-consuming. A high precision environment with the similar resources is also needed for a high precision simulation. In this paper, we propose a method of constructing a mixed reality-based digital manufacturing environment. The method integrates real objects, such as real images, with the virtual objects of a virtual manufacturing system. This type of integration minimizes the cost of implementing virtual objects and enhances the user's sense of reality. We studied several methods and derived a general framework for the system. Finally, we developed our idea into a virtual factory layout planning system. To assign the pose and position of real objects in virtual space, we applied a circle-based tracking method which uses a safety sign instead of the planar-square-shaped marker generally used for registration. Furthermore, we developed the framework to encapsulate simulation data from legacy data and process data for visualization based on mixed reality. Crown Copyright (C) 2010 Published by Elsevier B.V. All rights reserved.