Purpose: To evaluate the impact of a multicomponent health promotion and disease self-management intervention on physical function and health care expenditures among Medicare beneficiaries. To determine if these outcomes vary by urban or rural residence. Design and Methods: We analyzed data from a 22-month randomized controlled trial of a health promotion/disease self-management program that included 766 elderly Medicare beneficiaries from western New York, West Virginia, and Ohio. Physical function was measured by changes in self-reported dependencies in activities of daily living over the study period. Total health care expenditures were measured by aggregating expenditures from major sources (acute, postacute, and long-term care). We used ordinary least squares models to examine the effects of the intervention on both physical function and cost outcomes during the 22-month period. Results: The results indicated that the intervention reduced physical functional decline by 54% (p = 0.03) in the study sample. Stratified analyses showed that the intervention effect was much stronger in the rural sample. Mean total health care expenditures were 11% ($3,100, p = 0.30) lower in the intervention group. The effects of the intervention on average health care expenditures were similar among urban and rural participants. Implications: The intervention offered a promising strategy for reducing decline in physical function and potentially lowering total health care expenditures for high-risk Medicare beneficiaries, especially for those in rural areas. Future studies need to investigate whether the findings can be replicated in other types of rural areas through a refined intervention and better targeting of the study population.