The purpose of this study is to investigate the effect of functional ability on relocation among the elderly. Longitudinal data from the Asset and Health Dynamics among the Oldest Old (1993, 1995) were analyzed for 6,225 respondents aged 70 or older. Among functional ability measures, difficulties in advanced activities of daily living (i. e., making telephone calls, taking medications, and managing money), lower body activities (i. e., walking several blocks, climbing one flight of stairs, pulling or pushing large objects, and carrying over 10 pounds), and household activities of daily living (i. e., preparing hot meals and shopping for groceries) were the predictors of increased residential move. Difficulties in basic activities of daily living (i. e., bathing, dressing, getting in and out, and using the toilet) were strongly related to increased entrance into an institutional care facility. Efforts to enhance the independent living of the elderly in the community setting should target the compensation of these functional difficulties.