The integration and commissioning of Ambient Assisted Living (AAL) systems are time consuming and complicated. The lack of interoperability of available AAL system components has to be considered as an obstacle especially for innovative SMEs. In order to ease integration and commissioning of systems, knowledge based methods should be taken into account to enable innovative characteristics such as design automation, self-configuration and self-management. Semantic technologies are suitable instruments for mastering the problems of interoperability of heterogeneous and distributed systems. As an important prerequisite for the emergence of knowledge-based assistance functions a standard for an unambiguous representation of AAL relevant knowledge has to be developed. In this article, the development of an AAL ontology is proposed as a formal basis for knowledge-based system functions. A prototype of an AAL specific ontology engineering process is presented through the modeling example of a formal representation of a sensor block that is part of an AAL Integration Profile proposed by the RAALI project consortium.