A system and method for diagnosing deficiencies and assessing knowledge in test responses comprises a computerized testing station for presenting questions to a responder. An initial response analyzer communicates with the testing station for determining the correctness of each literal response by the responder to each question. A necessary knowledge determiner is disposed to analyze each literal incorrect response to each question from the initial response analyzer for detecting responder's specific deficiencies in past cumulative knowledge and in new subject matter knowledge. A cumulative knowledge analyzer and a production rule analyzer are each provided for analyzing each of responder's literal incorrect responses to each question for identifying each specific deficiency in past cumulative knowledge and in new subject matter knowledge, respectively. Finally, a report generator communicates with the cumulative knowledge analyzer and the production rule analyzer for generating a written deficiency report of responder's specific deficiencies.