CityEngine uses a procedural modeling approach which means it automatically generates models through a predefined rule set. The rules are defined through a CGA shape grammar system enabling the creation of complex parametric models. A user can change or add the shape grammar as much as needed providing room for new design possibilities.

Modeling an urban environment within CityEngine usually starts out with creating a street network either with the street drawing tool or via maps imported from openstreetmap.org. Next step is to subdivide all the lots as many times as specified resulting in a urban map of lots and streets (see the New York 2259 example). Now by selecting all or some of the lots CityEngine can be instructed to start generating the buildings. Due to the underlying procedural modeling technology all buildings can be made to vary from one another to achieve a urban aesthetic. At this point the city model can be re-designed and adjusted by changing parameters or the shape grammar itself.