Although medical illness and physical disability are strongly associated with depression, the majority of older adults who experience medical illness or disability at any given time are not depressed. The aim of these analyses was to identify risk factors for new onset depression in a sample of medically ill, disabled older adults. The authors used data from a representative sample of homebound older adults who recently started receiving Medicare home healthcare services for medical or surgical problems (N = 539). The authors report on the rate and baseline predictors of new onset major or minor depression, using Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition (DSM-IV), criteria and assessed by the Structured Clinical Interview for DSM-IV Axis I Disorders, at 1-year follow-up. Our analyses were conducted with a subsample of older adults (N = 268) who did not meet criteria for major or minor depression and were not on an antidepressant medication at our baseline interview. At 1-year follow-up, 10% (28/268) of patients met criteria for either major (3%; 9/268) or minor depression (7%; 19/268). In multivariate analyses, the authors found that worse self-rated health (odds ratio [OR] = 0.53, p = 0.042), more somatic depressive symptoms (OR = 1.19, p = 0.015), greater number of activities of daily living (ADL) limitations at baseline (OR = 1.63, p = 0.014), and greater decline in ADL functioning from baseline to 1 year (OR = 1.59, p = 0.022) were all independently associated with onset depression. These findings underscore the significant fluctuations in both depression and disability in high-risk older adults and suggest that both persistent and new onset disability increase the risk of depression. They may also help in designing preventive strategies to promote the ongoing good mental health of these high-risk patients over time.