This research tests the hypothesis that being underweight in older adulthood carries with it a significant risk of being functionally impaired and having poor physical performance, irrespective of sex, age or sickness. In a cross-sectional study of poor elderly people living around a major teaching hospital in the Indian city of Mumbai, data on anthropometry, self-reported functional ability (activities of daily living and mobility), and physical performance (tests of handgrip and lower body strength, manual dexterity, flexibility and psychomotor co-ordination) were collected from 1,335 non-oedematous people aged 50-96 years (mean age 60). Data on serum albumin and haemoglobin levels and clinically diagnosed morbidity were available from hospital records. Because of exclusions and missing clinical data through hospital non-attendance, statistical analyses were performed on 1,097 (458 men, 639 women) subjects. The prevalence of underweight was high (26-41%). Bivariate analyses revealed significant negative associations between most variables and advancing age, and women to be worse off than men. There was high internal consistency within dimensions of functional ability and physical performance, and strong positive associations between nutritional status and many functional ability and physical performance outcomes. Using multivariate logistic regression, results showed that being underweight (Body Mass Index <18.5 kg/m2, and mid-upper arm circumference of <23 cms in men and <22 cms in women) carries a significantly increased risk (expressed as odds ratios) of having poor handgrip strength and dependence in mobility, dressing and bathing, independent of sex, age, morbidity and other confounders. Results were strongest for handgrip strength : using mid-upper arm circumference, underweight men were 4.5 times (95% Cl 2.5-8.1), and underweight women 4.2 times (95% Cl 2.5-6.9), more likely to have poor handgrip strength than normally nourished elderly in the sample. The hypothesis is upheld. This underlines the important potential of nutritional status improvement in enhancing the quality of life of elderly people in less developed countries.