OBJECTIVES: To determine whether objectively measured sleep quality predicts 5-year incident instrumental activity of daily living (IADL) impairment and decline in grip strength and gait speed in older women. DESIGN: Prospective cohort. SETTING: Participants' homes, Study of Osteoporotic Fractures sites. PARTICIPANTS: Eight hundred seventeen women with a mean age of 82.4 at baseline. MEASUREMENTS: Participants completed 4.1 ± 0.7 nights of wrist actigraphy at baseline and measures of IADL impairment, grip strength, and gait speed at baseline and 5-year follow-up. RESULTS: After 5 years of follow-up, approximately 41% of participants had incident impairment in one or more IADLs. The quartile of women with the shortest total sleep time (TST) had 93% greater odds of incident IADL impairment than the longest sleepers (adjusted odds ratio (AOR) = 1.93, 95% confidence interval (CI) = 1.25-2.97). Similarly, the quartile of women with the lowest sleep efficiency (SE) had 65% greater odds of impairment than those with the highest (AOR = 1.65, 95% CI = 1.06-2.57). Women in the shortest TST quartile had twice the odds of declining grip strength as those with the longest TST (AOR = 1.97, 95% CI = 1.17-3.32). Finally, women in the quartiles with the most wake after sleep onset (WASO) and the lowest SE had approximately 90% greater odds of grip strength decline than those with the least WASO (AOR = 1.90, 95% CI = 1.11-3.24) and SE (AOR = 1.92, 95% CI = 1.12-3.29). CONCLUSION: Findings indicate that shorter sleep duration, greater WASO, and lower SE are risk factors for functional or physical decline in older women. © 2012, Copyright the Authors Journal compilation © 2012, The American Geriatrics Society.