This study examined the relationship between the physical living environment and self-rated health in later life. It is hypothesized that older adults who reside in deteriorated neighborhoods will report more physical health problems than elderly people who live in better physical environments. However, it is further predicted that these effects will only emerge in the most dilapidated living conditions. Data from a nationwide survey of older adults provide support for this complex nonlinear relationship. Further analyses reveal that part of the effect can be attributed to friendship strains that arise in deteriorated neighborhood environments.Extensive research indicates that there is an inverse relationship between socioeconomic status and physical health (see Feinstein, 1993, for a recent review of this literature). It is important to point out that the link between social class and health status has been observed across the life course in samples consisting of children, as well as in studies that focus on older adults (e.g., House, Kessler, Herzog, et al., 1990). Although a number of potentially important factors have been invoked to explain this relationship (e.g., undesirable health behaviors), an intriguing line of research indicates that the physical living environment may play a role as well. Evidence for this may be found in the Alameda County Study. This research suggests that residence in poverty areas is a more important determinant of mortality than either income, education, or other personal measures of socioeconomic status (Haan, Kaplan, & Camacho, 1987). Those investigators argued that above and beyond economic influences per se, there may be something about the physical environment in which people live that affects their health status.The notion that the physical environment can have a substantial impact on people's lives has a long history in sociological theory. In particular, members of the classic "Chicago School" went to great lengths to trace the effect of urban environments on local residents (e.g., Park & Burgess, 1925). This early work revealed, for example, that extensive social isolation as well as high rates of mental disorder emerge in the most dilapidated and run-down areas of the city (Faris & Dunham, 1939).Gerontologists have also shown considerable interest in the impact of the physical environment on older adults (e.g., Carp, 1975). However, instead of examining the effects of the physical environment on health, this literature has largely been concerned with other relationships. More specifically, research by Lawton and his colleagues focuses primarily on how psychological well-being is influenced by preexisting health problems and neighborhood conditions (Lawton, Brody, & Turner-Massey,