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Background: This study aimed to determine if people living in communities with higher socio-economic deprivation are at an increased risk of cognitive and functional impairment even after controlling for the effects of individual socio-economic status., Methods: We analysed cross-sectional data from the Medical Research Council Cognitive Function and Ageing Study which consists of a community-based sample of Cambridgeshire, Gwynedd, Newcastle, Nottingham and Oxford. The study included 13 004 men and women aged 65 years and over who were randomly selected from Family Health Services Authority computerized records after being stratified to ensure equal numbers of those aged 75 years and over and those under 75 years. The outcome measures were cognitive impairment (Mini-Mental State Exam 0-21) and functional impairment (Instrumental Activities of Daily Living and/or Activities of Daily Living disability)., Results: Individuals living in more deprived areas, as measured by the Townsend deprivation score, were found to have a higher prevalence of cognitive impairment [odds ratio (OR) (most deprived versus least deprived quintile) = 2.3; 95% confidence interval (CI)1.8-3.0; P < 0.001] and functional impairment [OR (most deprived versus least) = 1.6; 95% CI 1.4-1.9; P < 0.001] after controlling for age, sex, centre effects, education and social class., Conclusions: There is a significantly higher prevalence of cognitive impairment and functional impairment in elderly individuals living in socio-economically deprived areas regardless of their own socio-economic status. This evidence is of relevance for informing public health policy and those allocating resources for the long-term care of the elderly.