This retrospective observational study evaluated the association between nutritional status, functional ability and discharge outcomes. Data from 1430 older rehabilitation patients (43% male, median age 79 years, interquartile range: 74–84) were analyzed. One fifth (20.6%, n = 294) of patients were malnourished on admission to rehabilitation. Three important findings were evident. Firstly, nutritional status on admission to rehabilitation was associated with reduced functional, motor, cognitive and feeding scores on admission and discharge (all P < 0.05). Secondly, malnutrition at admission was associated with significantly slower gains in rehabilitation. Finally, malnutrition at admission was associated with significantly higher odds of a decline in functional ability during admission (OR 3.95; 95% CI: 2.14–7.27), and almost three times greater odds of additional care requirements on discharge (OR: 2.9 ((95% CI: 1.02–8.3). The nutritional status of patients on admission to inpatient rehabilitation is a predictor of both the speed and degree of rehabilitation gains and discharge outcomes.