This study examined the association of a performance-based measure of everyday functioning with clinically meaningful outcomes. Elderly participants in a prospective study of dementia were assessed at two occasions on the Everyday Problems Test for Cognitively Challenged Elderly (EPCCE), a performance-based measure of everyday functioning. Older adults who remained cognitively intact performed approximately 0.66 SD units higher on the EPCCE at both occasions than elders rated as impaired, when covarying on age, education, gender, and cognitive status. Relative to the nonimpaired participants, decline in EPCCE performance over a 2-year interval was significantly greater for impaired participants and those participants who transitioned from nonimpaired to impaired over the course of the study. Increased risk of mortality was associated with lower baseline scores and decline in EPCCE performance even after controlling for demographic variables and performance on the Mini-Mental State Examination. Given the clinical importance of identifying "at risk" elders for impairment, the findings from this study provide initial evidence for the predictive utility of performance-based measures of everyday functioning.