Increased gait instability is common in older adults, even in the absence of overt disease. The goal of the present study was to quantitatively investigate the factors that contribute to gait instability and its potential reversibility in functionally impaired older adults. We studied 67 older men and women with functional impairment before and after they participated in a randomized placebo-controlled, 6-mo multimodal exercise trial. We found that 1) gait instability is multifactorial; 2) stride time variability is strongly associated with functional status and performance-based measures of function that have previously been shown to predict significant clinical outcomes such as morbidity and nursing home admission; 3) neuropsychological status and health-related quality of life play important, independent roles in gait instability; and 4) improvement in physiological capacity is associated with reduced gait instability. Although the etiology of gait instability in older persons with mild-moderate functional impairment is multifactorial, interventions designed to reduce gait instability may be effective in bringing about a more consistent and more stable walking pattern.