The aim of this study was to determine whether older black and white patients experience different rates of improvement in functioning after being acutely hospitalized. Of the 2,364 community-living patients in this prospective cohort study, 25% self-reported their race/ethnicity to be black. The outcomes were improvement in basic activities of daily living (ADLs) and instrumental activities of daily living (IADLs) from admission to discharge and 90 days postdischarge. Multivariable models that included statistical adjustment for age, illness severity, in-hospital social service referral, dementia, admission level of functioning, and change in functioning from 2 weeks before admission were computed to determine whether black and white patients experienced significantly different rates of recovery at discharge and 90 days after discharge in ADL and IADL functioning. Black patients were as likely as white patients to improve in ADL functioning by discharge (odds ratio (OR) = 0.97, 95% confidence interval (CI) = 0.76-1.24) or by 90 days after discharge (OR = 0.95, 95% CI = 0.73-1.24) but significantly less likely to improve IADL functioning by discharge (OR = 0.72, 95% CI = 0.56-0.93) or by 90 days after discharge (OR = 0.68, 95% CI = 0.51-0.90). The findings suggest that differential rates of recovery in functioning after an acute hospitalization may contribute to racial/ethnic disparities in IADL functioning, which has implications for the setting of future interventions oriented toward reducing these disparities. © 2005 by the American Geriatrics Society.