The purpose of this study was to investigate health-related quality of life (HRQOL) and functional ability among the least dependent elderly in residential care, and to compare them with information on the general population. A stratified systematic sample (n = 1,587) was drawn from a one-day census of patients in all public residential homes in Finland on December 2, 1991. Sixty-nine per cent of residents in 1992 were able to participate (n = 1,097) and 86% of them returned the questionnaire (n = 948), of which n = 795 were acceptable, the response rate being 72%. A postal survey was used for data collection. The personnel of residential homes were allowed to help residents complete the questionnaire, and 90% of respondents received such help. HRQOL was measured by the Nottingham Health Profile (NHP) and functional ability by a 14-item questionnaire. Finnish studies among the general population were used for comparisons. According to the NHP, the HRQOL appeared lower in institutional care and this was associated with the dependency level. Similarly, for most ADL items the general population had less restrictions than the least dependent residential care patients. In general, women expressed more difficulties in physical mobility and lack of energy than men. The longest stay elderly expressed better HRQOL. In multivariate models adjusted for age and gender those with poor vision had worse HRQOL in almost every dimension of NHP. Difficulties in speech were connected with emotional reactions and social isolation. Chronic illness limiting normal daily life predicted more problems in energy, pain, physical mobility, and emotional reactions. The married or widowed experienced less social isolation than single elderly. Higher education was related to better HRQOL in all NHP dimensions. Poorer perceived health was associated with lack of energy, pain, and emotional reactions. We conclude from these results that there are only a few clients in residential care whose HRQOL or functional ability compare with the non-institutionalized population.