The purpose of this study was twofold: to examine the differences between two groups of older adults (depressed, nondepressed) for physical health impairment, psychosocial resources, and functional abilities, and to describe the impact of depression, physical health impairment, and psychosocial resources on functional ability. Seventy-eight community-dwelling older adults, age 60 to 75 years, were divided into two groups based on their depression scores. Depressed and nondepressed participants were not significantly different for demographic and illness characteristics, except for income. Depressed participants reported greater physical health impairment, decreased social resources, diminished feelings of economic well-being, and decreased functional abilities when compared to nondepressed participants. Mastery, physical health impairment, and social support were significant predictor variables of functional ability. Mastery was a particularly salient psychological resource for total functional abilities and interventions should be targeted to increasing mastery in older adults.