Background: As the elderly population increases in number, prediction and prevention of functional decline in this population are of great importance. This study evaluated whether depression in an elderly population could predict functional decline in activities of daily living and the components of instrumental activities of daily living 2 years after baseline. Methods: Data from the Korean Longitudinal Study of Aging panel, a national, representative sample of aging Koreans, were used. The subjects were the elderly aged 65 years or older who had no disabilities that hindered them from performing activities of daily living at baseline. Depression was measured using the Short-form (10-item) Center for Epidemiological Studies Depression Scale. Multivariable logistic regression analysis was performed to evaluate the effect of functional impairment according to baseline depression. Results: Of the 3,477 participants, 166 (4.8%) showed at least 1 impairment in the 7 activities of daily living (ADL) categories after 2 years. The participants with depression (scored 15 or higher on the depression scale) were more likely to have functional decline 2 years later (odds ratio, 1.82; 95% confidence interval, 1.23-2.71). All the components of the ADL had an increased tendency to develop functional decline (all odds ratios>1.00). Furthermore, negative items were significantly associated with functional decline (all p-values adjusted for trend<0.05). Conclusion: The participants with depression were more likely to have functional decline 2 years later. Such decline was observed in all types of ADL. Therefore, depression should be monitored and used as a predictor of functional decline in elderly adults.