The influence of type of illness (breast cancer versus osteoarthritis) and age on physical health and functioning, self‐system interpretive mechanisms, and women's psychological well‐being were examined. Self‐system interpretive mechanisms are considered mediators of the effects of physical health on psychological well‐being and include social comparisons, social integration, and illness perceptions. Young‐old (aged 60–74) and old‐old (75+) women, diagnosed with osteoarthritis (N = 102) or breast cancer (N = 86), who volunteered for the study were interviewed using structured self‐report scales. Young‐old and old‐old women did not differ in terms of health status, interpretive mechanisms, or on three of five indices of psychological well‐being. On the other hand, women with arthritis, regardless of age, reported more functional health problems, more symptoms, and perceived their illness as more severe, more chronic, and less controllable than women with breast cancer. Although women with arthritis and breast cancer differed significantly in terms of physical health, they did not differ on multiple measures of psychological well‐being. For both groups, women who made more positive social comparisons and who had more extensive social networks had higher levels of psychological well‐being, regardless of physical health problems. © 1996 John Wiley & Sons, Inc.