We present a framework for the design of a compliant system, i.e., the concurrent design of a compliant mechanism with embedded actuators and sensors. Our methods simultaneously synthesize optimal structural topology and component placement for maximum energy efficiency and adaptive performance, while satisfying various weight and performance constraints. The goal of this research is to lay an algorithmic framework for distributed actuation and sensing within a compliant active structure. Key features of the methodology include (1) the simultaneous optimization of the location, orientation, and size of actuators (and sensors) concurrent with the compliant transmission topology, and (2) the implementation of controllability and observability concepts (both arising from consideration of control) in compliant systems design. The methods used include genetic algorithms, graph searches for connectivity, and multiple load cases implemented with linear finite element analysis. Actuators, modeled as both force generators and structural compliant elements, are included as topology variables in the optimization. The results from the controllability problem are used to motivate and describe the analogous extension to observability for sensing. Results are provided for several studies, including (1) concurrent actuator placement and topology design for a compliant amplifier, (2) a shape-morphing aircraft wing demonstration with three controlled output nodes, and (3) a load-distribution sensing wing structure with internal sensors. Central to this method is the concept of structure/component orthogonality, which refers to the unique system response for each component (actuator or sensor) it contains.