Purpose: Albumin and C-reactive protein (CRP) are non-specific markers of inflammation, which could affect muscle tissue during acute hospitalization. We investigated the association between albumin and CRP during acute hospitalization with functional and body composition parameters in patients admitted to geriatric rehabilitation. Methods: The REStORing Health of Acutely Unwell AdulTs (RESORT) cohort includes geriatric rehabilitation patients assessed for change in activities of daily living (ADL, using the Katz index) during acute hospitalization, and subsequently for Katz ADL, gait speed (GS), handgrip strength (HGS) and skeletal muscle mass index (SMI) at geriatric rehabilitation admission. Albumin and CRP average (median), variation (interquartile range), and maximum or minimum were collected from serum samples, and were examined for their association with functional and body composition parameters using multivariable linear regression analysis adjusted for age, sex and length of acute hospital stay. Results: 1769 Inpatients were included for analyses (mean age 82.6 years ± 8.1, 56% female). Median length of acute hospitalization was 7 [IQR 4, 13] days and median number of albumin and CRP measurements was 5 [IQR 3, 12] times. ADL declined in 89% of patients (median − 3 points, IQR − 4, − 2). Lower average albumin, higher albumin variation and lower minimum albumin were associated with larger declines in ADL and with lower ADL, GS, HGS and SMI at geriatric rehabilitation admission. Higher average and maximum CRP were associated with lower GS. Conclusion: Inflammation, especially lower albumin concentrations, during acute hospitalization is associated with lower physical function at geriatric rehabilitation admission.