OBJECTIVE - To examine the relationship between diabetes and the incidence of functional disability and to determine the predictors of functional disability among older women with diabetes. RESEARCH DESIGN AND METHODS - We analyzed data from 8,344 women enrolled in the Study of Osteoporotic Fractures, a prospective cohort of women aged ≥65 years. Diabetes (n = 527, 6.3% prevalence) and comorbidities (coronary heart disease, stroke, arthritis, depression, and visual impairment) were assessed by questionnaire and physical examination. Incident disability, defined as onset of inability to do one or more major functional tasks (walking 0.25 mile, climbing 10 steps, performing household chores, shopping, and cooking meals), was assessed by questionnaire over 12 years. RESULTS - The yearly incidence of any functional disability was 9.8% among women with diabetes and 4.8% among women without diabetes. The age-adjusted hazard rate ratio (HRR) of disability for specific tasks associated with diabetes ranged from 2.12 (1.82-2.48) for doing housework to 2.50 (2.05-3.04) for walking two to three blocks. After adjustment for potential confounders at baseline (BMI, physical activity, estrogen use, baseline functional status, visual impairment, and marital status) and comorbidities (heart disease, stroke, depression, and arthritis), diabetes remained associated with a 42% increased risk of any incident disability and a 53-98% increased risk of disability for specific tasks. Among women with diabetes, older age, higher BMI, coronary heart disease, arthritis, physical inactivity, and severe visual impairment at baseline were each independently associated with disability. CONCLUSIONS - Diabetes is associated with an increased incidence of functional disabil-ity, which is likely to further erode health status and quality of life.