Previous studies showed physical activity had benefits for older adults’ life satisfaction, but the mechanism was unclear. This study aimed to investigate whether older adults with more physical activity had better functional fitness and life satisfaction, and whether functional fitness mediated the relationship between physical activity and life satisfaction. A cross-sectional study design was employed, and 623 older adults (73.71 ± 5.91 years) were recruited. Physical activity, functional fitness, life satisfaction, and demographic characteristics were collected. Compared with older adults with low physical activity, those with high (B = 0.41, p = 0.025) and moderate (B = 0.40, p = 0.041) physical activity had better life satisfaction; those with high physical activity had better lower limb muscle strength (B = 1.71, p = 0.001), upper (B = 2.91, p = 0.032) and lower (B = 3.12, p = 0.006) limb flexibility, cardiorespiratory endurance (B = 6.65, p = 0.008), and dynamic balance ability (B = −1.12, p < 0.001). Functional fitness did not mediate the relationship between physical activity and life satisfaction. Promoting physical activity may be useful for increasing older adults’ functional fitness and life satisfaction, but the effects on functional fitness only occurred at a high level of physical activity, and the effect of physical activity on life satisfaction was not mediated by functional fitness.