["Australasian Journal on Ageing, Volume 45, Issue 2, June 2026. ", "\nABSTRACT\n\nObjective\nThis study examined how changes in activities of daily living (ADL) and instrumental activities of daily living (IADL) relate to living arrangement transitions among older adults in China, and whether associations differ by urban and rural settings.\n\n\nMethods\nData came from the 2008–2018 Chinese Longitudinal Healthy Longevity Survey (CLHLS) of adults aged 65 years and older. Cox two‐state regression models assessed associations between functional transitions and living arrangement changes, stratified by community type.\n\n\nResults\nAmong 12,560 respondents, 81% lived with household members. Decline in ADL was associated with a higher hazard of transitioning to co‐residence (Hazard ratio (HR) = 1.16, 95% confidence interval (CI): 1.10–1.23) and a higher hazard of remaining in co‐residence (HR = 1.09, 95% CI: 1.01–1.17). The association with transitioning was observed in both urban (HR = 1.13) and rural (HR = 1.19) areas, while the association with remaining in co‐residence was significant only among rural older adults (HR = 1.23).\n\n\nConclusions\nFunctional decline is longitudinally associated with a higher likelihood of transitioning to and remaining in co‐residence. This association is more pronounced in rural areas. Although ADL decline appears to be associated with subsequent changes in living arrangement, future research should explore its potential bidirectional nature to better inform community‐specific interventions.\n\n"]