OBJECTIVES To determine the association between patients' functional status at discharge from inpatient rehabilitation and 30-day potentially preventable hospital readmissions. A secondary objective was to examine the conditions resulting in these potentially preventable readmissions. DESIGN Retrospective cohort study. SETTING Inpatient rehabilitation facilities submitting claims to Medicare. PARTICIPANTS National cohort (N=371,846) of inpatient rehabilitation discharges among aged Medicare fee-for-service beneficiaries in 2013 to 2014. The average age was 79.1±7.6 years. Most were women (59.7%) and white (84.5%). INTERVENTIONS Not applicable. MAIN OUTCOME MEASURES (1) Observed rates and adjusted odds of 30-day potentially preventable hospital readmissions after inpatient rehabilitation and (2) primary diagnoses for readmissions. RESULTS The overall rate of any 30-day hospital readmission after inpatient rehabilitation was 12.4% (n=46,265), and the overall rate of potentially preventable readmissions was 5.0% (n=18,477). Functional independence was associated with lower observed rates and adjusted odds ratios for potentially preventable readmissions. Observed rates for the highest versus lowest quartiles within each functional domain were as follows: self-care: 3.4% (95% confidence interval [CI], 3.3-3.5) versus 6.9% (95% CI, 6.7-7.1), mobility: 3.3% (95% CI, 3.2-3.4) versus 7.2% (95% CI, 7.0-7.4), and cognition: 3.5% (95% CI, 3.4-3.6) versus 6.2% (95% CI, 6.0-6.4), respectively. Similarly, adjusted odds ratios were as follows: self-care: .70 (95% CI, .67-.74), mobility: .64 (95% CI, .61-.68), and cognition: .84 (95% CI, .80-.89). Infection-related conditions (44.1%) were the most common readmission diagnoses followed by inadequate management of chronic conditions (31.2%) and inadequate management of other unplanned events (24.7%). CONCLUSIONS Functional status at discharge from inpatient rehabilitation was associated with 30-day potentially preventable readmissions in our sample of aged Medicare beneficiaries. This information may help identify at-risk patients. Future research is needed to determine whether follow-up programs focused on improving functional independence will reduce readmission rates.