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Background: Type 2 diabetes mellitus may alter the effect of physical activity on physical and cognitive function., Methods: The Lifestyle Interventions and Independence for Elders (LIFE) trial randomized controlled clinical trial of physical activity intervention (walking, resistance training, and flexibility exercises) enrolled adults aged 70-89 years who were sedentary and non-demented and who had functional limitations. Standardized measures of physical and cognitive function were collected an average of 2 years post-randomization. Differences between the intervention and control groups from 415 individuals with diabetes and 1,061 individuals without diabetes were contrasted with analyses of covariance., Results: At 24 months, assignment to the physical activity intervention resulted in 0.019 m/s relatively faster average 400-meter gait speeds (p = .007 overall) both for individuals with and without diabetes (intervention × diabetes interaction p = .99). No benefits were seen on scores from a physical performance battery. Performance on cognitive tests was better among participants assigned to the physical activity intervention compared with control only for those with diabetes, particularly for global cognitive function (p = .02) and delayed memory (p = .005), with mean [95% confidence intervals] for benefit from physical activity intervention of 0.114 [0.007,0.111] and 0.208 [0.030,0.387] standard deviations, respectively., Conclusions: Physical activity intervention improved the gait speed of older, sedentary individuals with and without diabetes. The cognitive function benefits occurred among participants with, but not without, diabetes. The mechanisms through which physical activity affects physical and cognitive function in older adults may differ for individuals by diabetes status., (© The Author 2016. Published by Oxford University Press on behalf of The Gerontological Society of America. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com.)