Functional levels are an extension of the mixed/native mode concept introduced in Windows 2000 to activate new Active Directory features after all the domain controllers in the domain or forest are running the Windows Server 2003 operating system.

When a computer that is running Windows Server 2003 is installed and promoted to a domain controller, new Active Directory features are activated by the Windows Server 2003 operating system over its Windows 2000 counterparts. Additional Active Directory features are available when all domain controllers in a domain or forest are running Windows Server 2003 and the administrator activates the corresponding functional level in the domain or forest (read Understanding Function Levels in Windows Server 2003 Active Directory for more info).

To activate the new domain features, all domain controllers in the domain must be running Windows Server 2003. After this requirement is met, the administrator can raise the domain functional level to Windows Server 2003 (read Raise Domain Function Level in Windows Server 2003 Domains for more info).

To activate new forest-wide features, all domain controllers in the forest must be running Windows Server 2003, and the current forest functional level must be at Windows 2000 native or Windows Server 2003 domain level. After this requirement is met, the administrator can raise the domain functional level.

Note: Network clients can authenticate or access resources in the domain or forest without being affected by the Windows Server 2003 domain or forest functional levels. These levels only affect the way that domain controllers interact with each other.

Important

Do not raise the forest functional level if you have, or will have, any domain controllers running 
Windows NT 4.0 or Windows 2000. As soon as the forest functional level is raised to Windows 
Server 2003, it cannot be changed back to the Windows 2000 forest functional level.

To raise the forest functional level, you must be a member of the Enterprise Admins group.

In order to raise the Forest Functional Level, follow these steps:

1. Log on to the First Domain Controller of the forest root domain with a user account that is a member of the Enterprise Administrators group.
2. Open Active Directory Domains and Trusts, click Start, point to All Programs, point to Administrative Tools, and then click Active Directory Domains and Trusts.
3. In the console tree, right-click Active Directory Domains and Trusts, and then click Raise Forest Functional Level.
4. Under Select an available forest functional level, click Windows Server 2003.
5. Then click Raise to r aise the forest functional level to Windows Server 2003.
6. Read the warning message, and if you wish to perform the action, click Ok.
7. You will receive an acknowledgement message telling you that the operation was completed successfully. Click Ok.
8. You can check the function level by performing step 3 again and viewing the current function level.

Note: To raise the forest functional level, you must upgrade (or demote) all existing Windows 2000 domain controllers in your forest.

If you cannot raise the forest functional level, you can click Save As in the Raise Forest Functional Level dialog box to save a log file that specifies which domain controllers in the forest still must be upgraded from Windows NT 4.0 or Windows 2000.

If you receive a message that indicates you cannot raise the forest functional level, use the report generated by "Save As" to identify all domains and domain controllers that do not meet the requirements for the requested increase.

The current forest functional level appears under Current forest functional level in the Raise Forest Functional Level dialog box. After the forest level is successfully increased and replicated to the PDCs in the domains, the PDCs for each domain automatically increase their domain level to the current forest level. The level increase is performed on the Schema FSMO and requires Enterprise Administrator credentials.