Data from 30 elderly inpatients with major depression were analyzed to explore the relationship between subcortical hyperintensities (SH) on MRI and activities of daily living (ADLs). A comparison of subjects based on a median split of the severity of SH revealed that subjects with greater SH performed worse on both instrumental and physical ADLs. A hierarchical multiple regression revealed that age, depression severity, neuropsychological test performance, and SH variables accounted for a total of 53% of the variance in ADL functioning. Severity of SH accounted for an additional 18% of the variance over and above the other three variables. Results suggest that severity of subcortical disease measured by MRI improves prediction of functional impairment in elderly individuals.