To determine whether older adults who exercise demonstrate higher levels of physical function than those who do not exercise but are physically active throughout the day. Cross-sectional examination of baseline data from the Health, Aging and Body Composition (Health ABC) study. Health ABC field centers in Pittsburgh, Pennsylvania, and Memphis, Tennessee. Three thousand seventy-five well-functioning black and white men and women aged 70 to 79. Physical activity and exercise were assessed using a modified leisure-time physical activity questionnaire. Participants were classified as inactive (reporting <1,000 kcal/wk of exercise activity and < or =2,719 kcal/wk of total physical activity), lifestyle active (reporting <1,000 kcal/wk of exercise activity and >2,719 kcal/wk of total physical activity), or exerciser (reporting> or =1,000 kcal/wk of exercise activity). Physical function measures included the Established Populations for the Epidemiologic Studies of the Elderly (EPESE) battery, the Health ABC battery, a 400-m walk test, and isokinetic strength testing of the knee extensors. The lifestyle active and exerciser groups had similar total activity levels (men: 6,135 kcal/wk and 6,734 kcal/wk, respectively; P=.108; women: 5,695 kcal/wk and 5,854 kcal/wk, respectively; P=.335). When examining lower extremity performance in relation to physical activity, a progressive trend was evident, with the inactive individuals most likely to have impaired performance on the EPESE battery (men: 33.7%, 24.3%, and 19.1%, P<.001; women: 49.9%, 37.3%, and 28.4%, P<.001; inactive, lifestyle active, and exerciser, respectively). Progressive trends of similar magnitude were present for the Health ABC battery, time to walk 400 m, and knee extensor strength. In multivariate linear regression, those in the inactive and lifestyle active groups had poorer scores on the Health ABC performance battery than individuals in the exercise group after controlling for demographic factors and prevalent disease (men: inactive beta=-0.27, P<.001, lifestyle active beta=-0.07, P=.032; women: inactive beta=-0.23, P<.001, lifestyle active beta=-0.07, P<.059). After controlling for demographic factors and prevalent disease, the lifestyle active and exercisers had similar proportions of functionally limited older persons (scoring <10 on the EPESE battery). Older adults who participate in 20 to 30 minutes of moderate-intensity exercise on most days of the week have better physical function than older persons who are active throughout the day or who are inactive. Any type of physical activity is better than no activity for protection against functional limitations, but exercise confers greater benefit for physical capacity.