Objectives To determine the association between sleep-disordered breathing (SDB) and decline in instrumental activities of daily living (IADLs) and mobility in older women. Design Prospective cohort. Setting Minneapolis and Pittsburgh sites of the Study of Osteoporotic Fractures, participants' homes. Participants Women with a mean age ± standard deviation of 82.3 ± 3.2 (N = 302). Measurements Participants completed a single night of unattended polysomnography and provided data regarding difficulty with IADLs and mobility. They repeated IADL and mobility measures 5.0 ± 0.7 years later. Results After adjustment for age, obesity, Mini-Mental State Examination score, depressive symptoms, history of hypertension and chronic obstructive pulmonary disease, and number of IADL impairments at baseline, women with an apnea-hypopnea index (AHI) of 15 or greater at baseline had more than twice the odds of an increase in number of IADL difficulties (adjusted odds ratio (aOR) = 2.22, 95% confidence interval (CI) = 1.09-4.53) and of incident IADL difficulty (aOR = 2.43, 95% CI = 1.00-5.92), of women with an AHI less than 5. There was no association between AHI and mobility difficulty. Women in the middle and highest tertiles of oxygen desaturation index had more than double the odds as those in the lowest tertile of an increase in number of IADL difficulties (middle tertile aOR = 2.64, 95% CI = 1.38-5.04, highest tertile aOR = 2.17, 95% CI = 1.13-4.17) and approximately three times the odds of incident IADL difficulty (middle tertile aOR = 2.84, 95% CI = 1.27-6.36, highest tertile aOR = 3.07, 95% CI = 1.31-7.18). Neither sleep fragmentation nor sleep duration was associated with IADL outcomes. Conclusion SDB and associated hypoxemia are risk factors for functional decline in older women. Research is needed to determine whether treatment of SDB prevents functional decline.