Objective: To assess the association between muscle parameters (mass, strength, physical performance) and activities of daily living (ADL), quality of life (QoL), and health care costs. Design: Cross-sectional Maastricht Sarcopenia Study (MaSS). Setting: Community-dwelling, assisted-living, residential living facility. Participants: 227 adults aged 65 and older. Measurements: Muscle mass, hand grip strength and physical performance were assessed by bio-electrical impedance, JAMAR dynamometer and the Short Physical Performance Battery, respectively. Health outcomes were measured by the Groningen Activity Restriction Scale (disability in ADL) and the EQ-5D-5L (QoL). Health care costs were calculated based on health care use in the past three months. Results: Muscle strength and physical performance showed a strong correlation with ADL, QoL, and health care costs (P<.01); for muscle mass no significant correlations were observed. Regression analyses showed that higher gait speed (OR 0.06, 95%CI 0.01-0.55) was associated with a lower probability of ADL disability. Furthermore, slower chair stand (OR 1.23, 95%CI 1.08-1.42), and more comorbidities (OR 1.58, 95%CI 1.23-2.02) were explanatory factors for higher ADL disability. Explanatory factors for QoL and costs were: more disability in ADL (OR 1.26, 95%CI 1.12-1.41 for QoL; B = 0.09, P<.01 for costs) and more comorbidities (OR 1.44, 95%CI 1.14-1.82 for QoL; B = 0.35, P<.01 for costs). Conclusion: Lower gait speed and chair stand were potential drivers of disability in ADL. Disability in ADL and comorbidities were associated with QoL and health care costs in community-dwelling older adults. Improving physical performance may be a valuable target for future intervention and research to impact health burden and costs.