This study examines whether high self-efficacy is protective against a decline in functional status in community-residing elderly persons. Data came from a sample of 1,103 subjects aged ≥72 years who were ambulatory within the household and who received in-home assessments at baseline and 18 months later to obtain information on sociodemographic, psychosocial, and health status variables, including physical performance tests. Functional status was based on six basic self-care tasks (ADLs). Using OLS regression, lower self-efficacy was marginally related to decline in functional status, after controlling for sociodemographic and health-related variables. As hypothesized, there was a significant interaction effect between self-efficacy and change in physical performance, suggesting that low self-efficacy was particularly predictive of functional decline among older individuals who showed a decline in physical performance at follow-up. These findings provide support for the buffering effect of self-efficacy on functional decline in the face of diminished physical capacity.