BACKGROUND: There is a shortage of research studies that assess how selected characteristics of neighbourhood and personal social circumstances contribute towards health-related quality of life (QoL) among older people. METHODS: Analysis of baseline data for 5581 people aged > or =75 years and over from the Trial of Assessment and Management of Older People in the Community. The scores for four dimensions from the UK version of the Sickness Impact Profile and for the Philadelphia Geriatric Morale Scale were analysed in relation to individual social class and the Carstairs score of socioeconomic deprivation for the enumeration district of residence. RESULTS: In age and sex adjusted analyses, the proportion of participants of social class IV/V living in the most deprived areas who were in the quintile with worst QoL scores was more than double that among those from social class I/II living in the least deprived areas. Individual social class and area deprivation score contributed roughly equally to this doubling for home management, self-care and social interaction, whereas social class appeared a stronger determinant for mobility. Adjustment for living circumstances, health symptoms, and health behaviours substantially reduced the excess risk associated with social class and area deprivation. Being in a rural area was associated with lower risk of poor morale. CONCLUSION: Poor socioeconomic characteristics of both the area and the individual are associated with worse functioning (QoL) of older people in the community. This is not fully explained by health status. Policy should consider community-level interventions as well as those directed at individuals.