Objective: Physical activity (PA) may slow aging-related declines in physical functioning (PF), but the relationship of PA and falls is not well understood. This study examined the association of PA and PF with falls. Methods: The Study of Women’s Health Across the Nation participants (n = 1597; age: 65.1 years ± 2.7) reported PF and PA in 2012–2013 and falls in 2016–2017. Four phenotypes were identified: high PA–high PF, high PA–low PF, low PA–high PF, and low PA–low PF. Results: One-third (29.3%) reported ≥1 fall. Women with low PA–low PF (RR = 1.32; 95% CI: 1.06, 1.66) and with high PA–low PF (RR = 1.37; 95% CI: 1.07, 1.74) were more likely to fall than high PA–high PF. Over time, women with worsening PF had increased fall risk (RR = 1.43; 95% CI: 1.17, 1.74), but women who increased PA did not. Discussion: Poor PF increases the risk of falls, regardless of PA. However, increasing PA does not necessarily increase fall risk, reinforcing the importance of PA engagement.