A new real-time obstacle avoidance method for mobile robots has been developed. This method, namely the vector-distance function method, permits the detection of obstacles (both moving and stationary) and generates a path that can avoid collisions. The proposed approach expresses the distance information in a vector form. Then the notion of weighting is introduced to describe relationship between sensors of mobile robots and the target to be reached. Furthermore, R-mode, L-mode and T-mode are introduced to generate a safe path for the mobile robot in a dynamic environment filled with both stationary and moving obstacles. The algorithm can deal with a complicated obstacle environment, such as multiple concave and convex obstacles. Simulation results are included to demonstrate the applicability and effectiveness of the developed algorithm.