A project methodology is proposed that is suitable for small teams working on the design of mechatronic systems. It is an alternative to a waterfall development method, which presents challenges when project uncertainty and risk are high. The method focuses on agility, iteration, feedback and collaboration, drawing ideas from modern agile software development methodologies while considering the difficulties of physical prototyping. Following a review of existing approaches to the design process and project management, a framework and methodology are presented. The impact of the product lifecycle and business model on the project is explored. The role of iteration is discussed in terms of team management and the design process, with consideration for the design's capacity for change. Effective methods of cross-discipline team organization are described. Project characteristics are identified that indicate whether an agile approach is appropriate. Seven principles are established to improve agility of the design. Feedback and knowledge transfer is accomplished through retrospective activities, documentation, and frequent prototyping. Rapid prototyping techniques are described for a range of mechatronic disciplines which can be used to increase the frequency of prototypes, feedback and iteration. A minimum set of live artifacts are suggested to capture the state of the project. The proposed methodology model has three phases. Project initiation helps a team evaluate feasibility and create a foundation for success in the next phase, with a focus on client engagement, planning and research, and creating baseline artifacts. Project iteration follows a Plan, Execute, Review, and Go/No-Go workflow. Task management is supported by a kanban board and feature backlog, while high level planning and time-boxed synchronization with stakeholders leverage a roadmap artifact. Project conclusion occurs at completion or termination, when feedback at the project level helps the team evaluate process and technical success. Two case studies of previously completed projects are presented to understand the methods and challenges in the context of the proposed methodology. Future work includes implementing the methodology in a mechatronics design project from start to finish so that the effectiveness of the methodology can be verified.