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Many assume that having poor physical health in old age lowers life satisfaction, but in fact there are large differences in life satisfaction among older people who experience disability. To investigate whether psychosocial factors modify the negative association between disability and life satisfaction in older people and whether these differ across the life course. Cross sectional study. 66,561 community-dwelling Survey of Health, Ageing, and Retirement in Europe (SHARE) participants aged 50–106 with a mean age of 67.8 ± 9.9 (SD) years from 17 European countries and Israel. Psychosocial factors included depression (EURO-D scale), perceived loneliness, having a spouse, having children, contact with children, and participation in social activities. Disability was assessed by limitations in (Instrumental) Activities of Daily Living ((I)ADL) and life satisfaction by Cantril's ladder. We also ran the analyses with the Control Autonomy Self-realization Pleasure (CASP-12) Index, a normative measure of quality of life. We used multiple linear regressions to estimate associations and proportion of variance explained. The variance in life satisfaction that could be attributed uniquely to ADL and IADL disability was 0.17% and 0.33% respectively (both p < 0.001). The impact of (I)ADL disabilities on life satisfaction was strongest at age 50 and gradually decreased with increasing age (p trend < 0.001). Mental health explained more variance; 5.75% for depressive symptoms and 2.50% for loneliness and for social resources this ranged from 0.09% to 0.47% (all p < 0.001). While disability has a negative effect on life satisfaction, the effect was not stronger in older persons who were depressed, neither in those who felt lonely nor in those without social resources. Similar outcomes were found when using CASP-12 as the explained variable. The impact of (I)ADL disabilities on life satisfaction in community-dwelling older people decreases with age. These associations are not affected by psychosocial factors and these patterns cannot be explained by people changing their norms and values. [ABSTRACT FROM AUTHOR]