We aimed to disentangle the effect of chronic multimorbidity and disability on 3-year functional decline and survival in the elderly. Prospective cohort study with a mean of follow-up of 2.8 years. Swedish elderly persons from the Kungsholmen Project (1987-2000). A total of 1099 subjects, 77-100 years old, living in the community and institutions. Medical diagnoses (based on clinical examination, drug use, medical records and blood tests), and functional assessment (according to Katz Index) at baseline were investigated in relation to functional decline and death occurring during follow-up. At baseline, 12.1% of participants had disability, and 52.3% were affected by multimorbidity. During follow-up, 363 persons died and 85 worsened in functioning. The number of chronic conditions incrementally increased the risk of functional decline [hazard ratio (HR) increased from 1.5 in subjects with one disease to 6.2 in persons with 4+ diseases]. However, this was not the case for mortality, as the HR of death was the same for people with one disease as well as 4+ diseases (HR=2.3). Baseline disability had the highest impact on survival, independently of number of diseases [HR=8.1; 95% confidence interval (CI)=4.8-13.7 in subjects with one disease and HR=7.7; 95% CI=4.7-12.6 in those with 2+ diseases]. In the elderly subjects, chronic disability rather than multimorbidity emerged as the strongest negative prognostic factor for functionality and survival.