Aim:  This study evaluated the cross‐sectional and longitudinal associations of functional and health status with institutional care, and examined determinants of institutional care use over time. Methods:  Data of this study were obtained from the Survey of Health and Living Status of the Elderly in Taiwan (SHLSET), which was launched in 1989 and involved a nationally representative sample of nearly‐old and old Taiwanese. The baseline data in this present study were collected in 1999, and followed in 2003 and 2007. Results:  Participants with institutional care use had a higher activities of daily living (ADL) score, more self‐reported diseases and poorer self‐reported health status than participants without institutional care use (all P < 0.05). Cross‐sectional analysis showed that a higher ADL score, having heart diseases and having a stroke were positively associated with institutional care use (P < 0.05); whereas the number of self‐reported diseases and poor self‐reported health status were not associated with institutional care use. Longitudinal analysis showed that increased ADL scores and the number of self‐reported diseases over 4‐ and 8 years were associated with an increased likelihood of subsequent institutional care use (all P < 0.05). Worsening health status over 4 years was associated with an increased likelihood of subsequent institutional care use, but this association did not exist over 8 years. Conclusions:  Only ADL and ADL deterioration over time are cross‐sectionally and longitudinally associated with increased institutional care use. Declining functional status is a major determinant of institutional care use for Taiwanese aged over 53 years. Geriatr Gerontol Int 2013; 13: 597–606.