Background: In mental health research, functional recovery is increasingly valued as an important outcome in addition to symptomatic remission. Methods: Course types of functional limitations among depressed older patients and its relation with symptomatic remission were explored in a naturalistic cohort study (Netherlands Study of Depression in Older persons). 378 depressed older patients (≥60 years) and 132 non-depressed persons were included. Depressive disorders were assessed with Composite International Diagnostic Interview at baseline and two-year follow-up. Functional limitations were assessed every 6 months with the World Health Organization Disability Assessment II. Results: Depressed patients had more functional limitations compared to their non-depressed counterparts. Growth Mixture Modeling among depressed patients identified two trajectories of functional limitations, both starting at a high disability level. The largest subgroup (81.2%) was characterized by a course of high disability levels over time. The smaller subgroup (18.8%) had an improving course (functional recovery). After two years, the main predictor of functional recovery was the remission of depression. Among symptomatic remitted patients, female sex, higher level of education, higher gait speed, and less severe depression were associated with no functional recovery. Non-remitted patients without functional recovery were characterized by the presence of more chronic somatic diseases, a lower sense of mastery, and a higher level of anxiety. Conclusions: 1 in 5 depressed older patients have a course with functional recovery. Combining functional and symptomatic recovery points to a subgroup of older patients that might profit from more rigorous psychiatric treatment targeted at psychiatric comorbidity and a group of frail depressed older patients that might profit from integrated geriatric rehabilitation.