A conceptual difficulty in formulating the density functional theory of the fractional quantum Hall effect is that while in the standard approach the Kohn-Sham orbitals are either fully occupied or unoccupied, the physics of the fractional quantum Hall effect calls for fractionally occupied KohnSham orbitals. This has necessitated averaging over an ensemble of Slater determinants to obtain meaningful results. We develop an alternative approach in which we express and minimize the grand canonical potential in terms of the composite fermion variables. This provides a natural resolution of the fractional-occupation problem because the fully occupied orbitals of composite fermions automatically correspond to fractionally occupied orbitals of electrons. We demonstrate the quantitative validity of our approach by evaluating the density profile of fractional Hall edge as a function of temperature and the distance from the delta dopant layer and showing that it reproduces edge reconstruction in the expected parameter region.The density functional theory (DFT) is a powerful tool for treating many particle ground states. A quantitatively reliable DFT of the fractional quantum Hall (FQH) effect would obviously be extremely useful for elucidating the fundamental physics of FQH systems with spatially varying density, whether induced by an external potential or generated spontaneously, which are not readily amenable to many of the theoretical methods used in the field. However, the problem is nontrivial 1,2 because the solution is not close to a single Slater determinant in which some of the Kohn-Sham orbitals are fully occupied and the others empty, but instead entails fractional occupation of Kohn-Sham orbitals, as demanded by the physics of the FQH effect (FQHE). Theoretically, fractionally occupied orbitals arise because all single particle orbitals of electrons are degenerate in the absence of interaction, and interaction produces a strongly correlated state in a nonperturbative fashion. A possible way to obtain on-average fractionally filled Kohn-Sham orbitals is through ensemble averaging. In the first application of DFT to the FQHE, Ferconi, Geller and Vignale 1 averaged over a thermal ensemble to achieve fractional fillings and obtained the density profile at the edge in the presence of a confinement potential. In another approach, Heinonen, Lubin and Johnson 2 performed an average over the ensemble of Slater determinants obtained in successive steps of the iterative scheme for solving the KohnSham equations, and also generalized their approach to include the spin degree of freedom 3,4 .We present in this work a formulation of the DFT of FQHE in terms of composite fermions rather than electrons. This provides a natural solution to the fractionaloccupation problem, because occupied orbitals of composite fermions, as obtained in the DFT formulation, automatically correspond to fractionally filled Kohn-Sham orbitals of electrons. We minimize, in a local density approximation, the thermodynamic potential expressed as a f...