Background. Functional status changes before and during hospitalization may have important effects on outcomes in older adults, but these effects are not well understood. We determined the influence of functional status changes on the risk of nursing home (NH) admission after hospitalization. Methods. Subjects were 551 general medical patients ≥70 years old (66% female; mean age = 80 years) admitted from home to a large Midwestern teaching hospital. Functional status change measures were based on patients' need for assistance in five personal activities of dally living (ADL) 2 weeks prior to hospital admission, the day of admission, and the day of discharge. Sociodemographic and clinical characteristics were included in multivariate models predicting NH admission. Results. Functional status change categories were: stable in function before and during hospitalization (45% of study patients); decline in function before and improvement during hospitalization (26%); stable before and decline during hospitalization (15%); decline before and no improvement during hospitalization (13%). In multivariate analyses, patients in the decline-no improvement group (odds ratio [OR] = 3.19; 95% confidence interval [CI] = 1.46-6.96) and patients in the stable-decline group (OR = 2.77; 95% CI = 1.29-5.96) were at greater risk for NH admission than patients in the stable-stable group. In a multivariate model that controlled for ADL function at hospital discharge, functional status change was no longer statistically significantly associated with NH admission. Conclusions. Discharge function is a key risk factor for NH admission among hospitalized older adults. Because functional status changes before and during hospitalization are key determinants of discharge function, they provide important clues about the potential to modify that risk. Functional recovery during a hospital stay after prior functional decline, and prevention of in-hospital functional decline after prior functional stability, are important targets for clinical intervention to minimize the risk of NH admission.