Generativity is defined as an individual’s concern for and actions dedicated toward the well-being of others, especially youth and subsequent generations. It is a key stage of psychological development from midlife to older age and can be a guiding concept for promoting engagement of older adults in productive and contributive activities, which benefit their well-being. This study examined the longitudinal association between generativity and higher-level functional capacity (HLFC) decline in older Japanese adults. The two-year longitudinal data of 879 older adults aged 65–84 years were analyzed. Participants’ HLFC and generativity were assessed using the Tokyo Metropolitan Institute of Gerontology Index of Competence and the Revised Japanese version of the Generativity Scale, respectively. The binary logistic regression analysis results showed that a higher generativity score was negatively associated with HLFC decline, indicating that generativity effectively prevents HLFC decline over 2 years. On adding the interaction term between generativity and sex to examine whether the protective effect of generativity differed by sex, we found that generativity was especially effective in protecting the HLFC decline in men with higher generativity. The study results highlight the importance of promoting engagement of older adults in generative activities to maintain their HLFC.