Background <p>Cognitive decline is a disproportionately prevalent condition among older Mexican Americans, highlighting the need to understand the biopsychosocial factors contributing to cognitive health in this population. The study aims to investigate the longitudinal association between functional difficulty and cognitive decline and to determine the moderating effect of neighborhood disadvantage among older Mexican Americans.</p> Methods <p>We used four waves of data from the Hispanic Established Population for the Epidemiologic Study of the Elderly (2004–2005 to 2012–2013) linked to the 2010 National Neighborhood Data Archive. We selected older Mexican Americans who scored ≥ 21 on the Mini-Mental State Examination (MMSE) at baseline (<i>n</i> = 1,189). Cognitive function was measured by the MMSE. Neighborhood disadvantage was assessed based on five census-tract indicators. Functional difficulty was indicated by limitations in activities of daily living (ADL) and instrumental ADL (IADL). Multilevel mixed-effects regression models were performed to estimate cognitive change over time.</p> Results <p>There was an average decline of 0.70 in the MMSE score as a function of ADL (<i>p</i> &lt; 0.001), but no significant changes were observed for IADL. Significant interactions were observed between study wave and ADL/IADL (both <i>p</i> &lt; 0.001) in predicting MMSE score. Participants with ADL/IADL difficulty experienced faster cognitive decline. Neighborhood disadvantage was associated with cognitive declines among participants with IADL difficulty, but not among those without.</p> Conclusion <p>Neighborhood disadvantage may represent a socioeconomic stressor that can negatively impact cognitive health among older Mexican Americans with functional difficulty. Culturally responsive neighborhood-level efforts may contribute to reducing the risk of cognitive decline among older Mexican Americans.</p>