Aim:  To examine whether rehabilitation therapy type would be associated with transitions to skilled nursing facilities (SNF) in community‐living seniors with acute medical illnesses. Methods:  Using administrative and clinical data, multivariate regression analysis examined the relationship between the extent of rehabilitation therapy and transitions to SNF in all participants, as well as participants by physical function at admission. Results:  In all participants (n = 929), the intensified rehabilitation therapy was associated with a lower probability of transitions to SNF (14% vs 21%; odds ratio [OR] 0.59; 95% confidence intervals [CI] 0.22–0.96; P = 0.02). In participants with mild physical limitations (n = 270), less frequent transitions to SNF occurred when patients received intensified rehabilitation therapy [16% vs 23%; OR 0.46; 95% CI 0.17–0.94; P = 0.01]. In participants with moderate to severe physical limitations (n = 265), the decreased frequency of transitions to SNF associated with rehabilitation therapy became more pronounced (18% vs 28%; OR 0.34; 95% CI 0.07–0.89; P = 0.004). By contrast, in participants without physical limitation (n = 394), the number of transitions to SNF did not change significantly when they received intensified rehabilitation therapy (P = 0.53). Conclusions:  We found a significant relationship between intensified rehabilitation therapy and the decrease of transitions to SNF in community‐living seniors with acute medical illness. The magnitude of this relationship increased in participants with more physical limitations, but not in participants without physical limitations at admission. Geriatr Gerontol Int 2013; 13: 547–554.