Purpose: Anemia is prevalent in old age and is potentially modifiable, but its effects on physical function have not been determined. We examined whether anemia in older persons increases the risk of subsequent decline in physical function, as measured by objective performance-based tests. Methods: Participants in this 4-year prospective cohort study included 1146 participants, aged 71 years or older, living in Iowa and Washington counties, Iowa. Anemia was defined according to World Health Organization (WHO) criteria as a hemoglobin concentration below 12 g/dL in women and below 13 g/dL in men. An assessment of standing balance, a timed 2.4-m walk, and a timed test of five chair rises were used to assess physical performance; these were combined into a 0 (poor) to 12 (excellent) summary scale. Results: After adjustment for baseline performance score, health status, and demographic characteristics, anemia was associated with greater mean decline in physical performance over 4 years; the adjusted mean decline was 2.3 (95% confidence interval [CI]: 1.7 to 2.8) in subjects with anemia and 1.4 (95% CI: 1.2 to 1.5) in those without anemia (P = 0.003). The association between anemia and greater physical decline was also present in participants who were free of diseases associated with anemia (cancer, infectious disease, and renal failure), and after adjustment for serum cholesterol, iron, and albumin levels. Persons with borderline anemia, a hemoglobin concentration within 1 g/dL above the WHO criteria, also showed greater mean physical decline (1.8; 95% CI: 1.5 to 2.2) than did those with higher hemoglobin concentrations (P = 0.02). Conclusion: This study suggests that anemia in old age is an independent risk factor for decline in physical performance.