Aims The present study examined the impact of serious spousal illness or hospitalization on community‐dwelling older adults' self‐rated health (SRH), and explored the moderating effects of sex and residential proximity to adult children using a prospective and representative survey design. Methods The sample was obtained from a 2‐year longitudinal survey of non‐institutionalized men and women aged 65 years and older carried out in the Fukui Prefecture, Japan (n = 1573). The effect of serious spousal illness or hospitalization on SRH during the survey period was examined after controlling for baseline SRH, sex, age, socioeconomic status, chronic illness and other baseline covariates. Results Overall, 15.7% of respondents had experienced a serious spousal illness or hospitalization within the previous year. After controlling for covariates, spousal illness had a significant negative effect on SRH at follow‐up (P = 0.031). More serious effects of spousal illness were found in older adults whose children lived farther than 30 min away than in couples who lived with their children (P = 0.009). However, there was no significant interaction effect between sex and spousal illness. Conclusions Serious spousal illness could cause deterioration in the health of older spouses, particularly for older parents whose children live a distance away. Geriatr Gerontol Int 2016; 16: 1332–1338.