Analogy is said to be ubiquitous in cognition. Since cognition is situated, it follows that analogical reasoning too is situated in external physical, social and informational environments. An essential first step in analogical reasoning is retrieval of a source case appropriate for the target situation. In this chapter, we study analogical retrieval in the context of biologically inspired design in which new technological designs are generated by cross-domain analogies to biological systems. We focus on the phenomenon of interactive analogical retrieval (IAR) wherein the source biological cases are obtained through interaction with online information environments. We first provide a description of IAR based on two in situ studies of biologically inspired design in an educational setting. We then describe an information-processing theory called PRISM that provides an explanation of IAR. The PRISM theory builds on the Pirolli’s  Information Foraging Theory and Thagard et al.’s  computational model of Analogical Retrieval by Constraint Satisfaction. If we take the boundary of the cognitive system in biologically inspired design as including online information environments, then the phenomenon of IAR becomes an important element of understanding the situatedness of analogical reasoning. By folding in interactions with external information environments, PRISM may provide a starting point for developing a general information-processing theory of situated analogy.