Objective To determine whether higher activity of daily living (ADL) limitation stages are associated with increased risk of hospitalization, particularly for ambulatory care sensitive (ACS) conditions. Data Source Secondary data analysis, including 8,815 beneficiaries from 2005 to 2006 Medicare Current Beneficiary Survey (MCBS). Study Design ADL limitation stages (0‐IV) were determined at the end of 2005. Hospitalization rates were calculated for 2006 and age adjusted using direct standardization. Multivariate negative binomial regression, adjusting for baseline demographic and health characteristics, with the outcome hospitalization count was performed to estimate the adjusted rate ratio of ACS and non‐ACS hospitalizations for beneficiaries with ADL stages > 0 compared to beneficiaries without limitations. Data Collection Baseline ADL stage and health conditions were assessed using 2005 MCBS data and count of hospitalization determined using 2006 MCBS data. Principal Findings Referenced to stage 0, the adjusted rate ratios (95 percent confidence interval) for stage I to stage IV ranged from 1.9 (1.4–2.5) to 4.1 (2.2–7.8) for ACS hospitalizations compared with from 1.6 (1.3–1.9) to 1.8 (1.4–2.5) for non‐ACS hospitalizations. Conclusions Hospitalization rates for ACS conditions increased more dramatically with ADL limitation stage than did rates for non‐ACS conditions. Adults with ADL limitations appear particularly vulnerable to potentially preventable hospitalizations for conditions typically manageable in ambulatory settings.