Abstract Background Traditional approaches to drug development are costly and involve high risks. The drug repurposing approach can be a valuable alternative to traditional approaches and has therefore received considerable attention in recent years. Findings Herein, we develop a previously undescribed computational approach, called DrugSim2DR, which uses a network diffusion algorithm to identify candidate anticancer drugs based on a drug functional similarity network. The innovation of the approach lies in the drug–drug functional similarity network constructed in a manner that implicitly links drugs through their common biological functions in the context of a specific disease state, as the similarity relationships based on general states (e.g., network proximity or Jaccard index of drug targets) ignore disease-specific molecular characteristics. The drug functional similarity network may provide a reference for prediction of drug combinations. We describe and validate the DrugSim2DR approach through analysis of data on breast cancer and lung cancer. DrugSim2DR identified some US Food and Drug Administration–approved anticancer drugs, as well as some candidate drugs validated by previous studies in the literature. Moreover, DrugSim2DR showed excellent predictive performance, as evidenced by receiver operating characteristic analysis and multiapproach comparisons in various cancer datasets. Conclusions DrugSim2DR could accurately assess drug–drug functional similarity within a specific disease context and may more effectively prioritize disease candidate drugs. To increase the usability of our approach, we have developed an R-based software package, DrugSim2DR, which is freely available on CRAN (https://CRAN.R-project.org/package=DrugSim2DR).