Territory design may be viewed as the problem of grouping small geographic areas into larger geographic clusters called territories in such a way that the latter are acceptable according to relevant planning criteria. In this paper we review the existing literature for applications of territory design problems and solution approaches for solving these types of problems. After identifying features common to all applications we introduce a basic territory design model and present in detail two approaches for solving this model: a classical location–allocation approach combined with optimal split resolution techniques and a newly developed computational geometry based method. We present computational results indicating the efficiency and suitability of the latter method for solving large–scale practical problems in an interactive environment. Furthermore, we discuss extensions to the basic model and its integration into Geographic Information Systems.