Is it possible to have dependencies between lists?

I am trying to work out a way of making the selection of one item in a dropdown field determine the values which appear in another dropdown field as per the following example:

Example:

• Dropdown Box 1 named 'Functional Area' and Dropdown Box 2 named 'Functional Area Sub Category'
• If the user selects the value 'Interfaces from Box 1, only those items relating to 'interfaces' should be displayed in Box 2.

My initial thoughts would be to have a custom list called 'Functional Area' containing all of the parent values. I would then create customised lists for each functional area which would be linked to the 'Sub Category' field.

If someone could advise whether this is possible or a suitable alternative that would be a huge help.