BACKGROUND: Ageing is associated with increased risk of poor health and functional decline. Uncertainties about the health-related benefits of nutrition and physical activity for older people have precluded their widespread implementation. We investigated the effectiveness and cost-effectiveness of a national nutritional supplementation program and/or a physical activity intervention among older people in Chile. METHODS AND FINDINGS: We conducted a cluster randomized factorial trial among low to middle socioeconomic status adults aged 65-67.9 years living in Santiago, Chile. We randomized 28 clusters (health centers) into the study and recruited 2,799 individuals in 2005 (~100 per cluster). The interventions were a daily micronutrient-rich nutritional supplement, or two 1-hour physical activity classes per week, or both interventions, or neither, for 24 months. The primary outcomes, assessed blind to allocation, were incidence of pneumonia over 24 months, and physical function assessed by walking capacity 24 months after enrollment. Adherence was good for the nutritional supplement (~75%), and moderate for the physical activity intervention (~43%). Over 24 months the incidence rate of pneumonia did not differ between intervention and control clusters (32.5 versus 32.6 per 1,000 person years respectively; risk ratio = 1.00; 95% confidence interval 0.61-1.63; p = 0.99). In intention-to-treat analysis, after 24 months there was a significant difference in walking capacity between the intervention and control clusters (mean difference 33.8 meters; 95% confidence interval 13.9-53.8; p = 0.001). The overall cost of the physical activity intervention over 24 months was US$164/participant; equivalent to US$4.84/extra meter walked. The number of falls and fractures was balanced across physical activity intervention arms and no serious adverse events were reported for either intervention. CONCLUSIONS: Chile's nutritional supplementation program for older people is not effective in reducing the incidence of pneumonia. This trial suggests that the provision of locally accessible physical activity classes in a transition economy population can be a cost-effective means of enhancing physical function in later life. TRIAL REGISTRATION: Current Controlled Trials ISRCTN 48153354.