We present a generalized Kohn-Sham (KS) density functional theory (DFT) based effective fragment potential (EFP2-DFT) method for the treatment of solvent effects. Similar to the original Hartree-Fock (HF) based potential with fitted parameters for water (EFP1) and the generalized HF based potential (EFP2-HF), EFP2-DFT includes electrostatic, exchange-repulsion, polarization, and dispersion potentials, which are generated for a chosen DFT functional for a given isolated molecule. The method does not have fitted parameters, except for implicit parameters within a chosen functional and the dispersion correction to the potential. The electrostatic potential is modeled with a multipolar expansion at each atomic center and bond midpoint using Stone's distributed multipolar analysis. The exchange-repulsion potential between two fragments is composed of the overlap and kinetic energy integrals and the nondiagonal KS matrices in the localized molecular orbital basis. The polarization potential is derived from the static molecular polarizability. The dispersion potential includes the intermolecular D3 dispersion correction of Grimme et al. [J. Chem. Phys. 132, 154104 (2010)]. The potential generated from the CAMB3LYP functional has mean unsigned errors (MUEs) with respect to results from coupled cluster singles, doubles, and perturbative triples with a complete basis set limit (CCSD(T)/CBS) extrapolation, of 1.7, 2.2, 2.0, and 0.5 kcal/mol, for the S22, water-benzene clusters, water clusters, and n-alkane dimers benchmark sets, respectively. The corresponding EFP2-HF errors for the respective benchmarks are 2.41, 3.1, 1.8, and 2.5 kcal/mol. Thus, the new EFP2-DFT-D3 method with the CAMB3LYP functional provides comparable or improved results at lower computational cost and, therefore, extends the range of applicability of EFP2 to larger system sizes.