Objective: to investigate the associations between chronic health conditions, psychosocial and environmental factors and catastrophic decline in mobility among older people. Design: longitudinal cohort. Setting: national sample living in private households. Participants: nine hundred and ninety-nine adults aged 65 years at initial interview, of which 786 agreed to take part in a follow-up survey 12 months later, and 531 responded to the questionnaire. Measurements: catastrophic decline in mobility: inability to do any of the three activities of daily living items—walking 400 yards, climbing up and down stairs or steps and getting on a bus—having been capable of independently doing all three one year earlier. Results: similar annual rates of catastrophic decline were reported for men and women: 4.8 [95% confidence interval (CI) 2.7–8.3] and 4.6% (2.4–8.6), respectively. Strong associations were found between catastrophic decline and age >70 years, hearing problems and health deterioration, odds ratio (OR) 3.7 (95% CI 1.1–11.8), 2.8 (1.1–7.3) and 4.3 (1.2–14.7), respectively. Poor perceptions of health, loss of control and feeling fearful also appeared to be important: below average summary psychological status, OR 6.5 (1.9–22.3). Inability to do heavy housework, carry heavy shopping or bend to cut own toenails, indicating poor functional reserve capacity, was strongly associated with decline, OR 6.8 (2.2–20.8). Conclusion: psychosocial factors are as strongly associated with catastrophic decline as deterioration in health status. Interventions to reduce the risk of catastrophic decline may require management of psychosocial problems as well as health condition components.