Ⅰ. Introduction From Firth’s theories in the London School, Michael Alexander Kirkwood Halliday developed his own theories of language, which is systemic functional grammar. His systemic functional grammar is a sociologically oriented functional linguistic approach and it is also one of the most influential linguistic theories in the 20th century. His grammar has exerted a great influence on various disciplines related to language, such as sociolinguistics, stylistics, machine translation, especially on language teaching and discourse analysis. This paper explores the application of systemic functional grammar in analysis of the discourse. This paper adopts the textual metafuction in analysis of context, structure of theme, and transivity in the discourse. The paper falls into four parts. The first part is the general introduction of the content in the paper. In the second part, the brief introduction of systemic functional grammar is presented. In the third part, the application of systemic functional grammar in analysis of the discourse from context, theme, and transivity aspects are discussed. The last part is the conclusion. Ⅱ. Introduction of systemic functional grammar In fact, systemic functional grammar is based on two facts: the first is, language users are actually making choices in a system and trying to realize different semantic functions in social interaction; the second is language is inseparable from social activities of man. Thus, it takes actual uses of language as the object of study. According to Halliday’s theories, there are three metafunctions which are ideational metafunction , interpersonal metafunction and textual metafunction. The ideational metafunction means people use language to describe their experience about the outside word and they also use language to describe what happened around them. The interpersonal metafunction means people use language to interact with each other, to establish and to maintain their relations. They also use language to influence other people’s actions or to express their point of view about the world. The last one is the textual matafunction which means the ways that people organize information. It presents the relation between information and the context when people read or write (Thompson, 2008). In fact, these three metafunctions are interrelated. They are closely connected during people’s interaction, discourse coherence, and mutual communication. Systemic functional grammar holds the view that language is the product of the society. As a method of people’s communication, it has various functions. It is a kind of textual grammar, and it can be used to analyze the discourse. Thus, the author holds the view that it is important to apply the discourse analysis which is guided by the systemic functional grammar into extensive reading. Ⅲ. The application of systemic functional grammar to discourse analysis Discourse is a language unit which consists of a series of clauses. Discourse analysis is a method that is to understand the text from the whole point of view. The paper adopts the systematic functional grammar to analyze the “The Expensive Fantasy of Lord Williams” from the context, theme, and transitivity aspects. 3.1 context The formation of any discourse can not be separated from the context, which includes the circumstances, society, culture, and surrounding people or things. Thus, if we want to have a deep understanding of the discourse, the context should come into consideration first. “context is the environment and basis for generating discourse, and there is no discourse which can get rid of the context”(Halliday, 2004). Halliday concluded three factors that determine the situational elements of language features which are: field, tenor and mode. He thought that these three elements are in accordance with the three metafunctions which are ideational metafunction, interpersonal metafunction, and textual metafunction. In the text “The Expensive Fantasy of Lord Williams”, the field is: an office worker named Anthony Williams who in order to maintain his imagination of Scotch nobility constantly stole money from London police office, at last, he was sent into the prison. The tenor of the text is Willianms who imagined himself as nobility and the common villagers, their social status are quietly different. The mood of the text is the formal written English. According to the analysis of the three elements of the