In this paper, the machine cell layout problem is examined. A new methodology for solving the problem is proposed. The methodology involves three stages. In the first stage, an algorithm suitable for solving the machine grouping problem is utilized. In the second and third stages, mathematical programming models of the machine cell and machine layout problems are formulated and solved using suitable algorithms. The development of a knowledge based system which uses models and algorithms for solving the machine grouping and layout problems, is also outlined.