We hypothesized that the relationship of depressive symptoms to functional disability might be mediated by cognitive processes such as memory and problem-solving. The study sample consisted of 147 community-dwelling older adults (mean age = 74.0 years, SD = 5.9). In regression models that included terms for age, gender, and years of education, depressive symptoms were significantly inversely associated with two performance-based measures of functioning: everyday problems test (β = -0.15, p = 0.04) and observed tasks of daily living (β = -0.14, p = 0.02). When memory and problem-solving ability were added to the model, the relationship of depressive symptoms with function was attenuated. A structural equation model based on our conceptual framework revealed that both memory and problem-solving abilities were important mediators in the relationship of depressive symptoms and functional disability. The results suggest that intervention studies intended to limit functional disability secondary to depression among older adults may need to consider the effect of depression on cognition.