The relationship between sleep quality and physical activity is bidirectional, yet prior research on older adults has mainly focused on investigating whether increasing levels of physical activity leads to improvements in sleep quality. The current longitudinal study examined both directional relationships by assessing sleep quality and physical activity twice over a two-year period among 426 community-dwelling older adults (ages 61-100). A cross-lagged panel analysis that included age, gender, perceived stress, functional ability, and severity of chronic health conditions as covariates, revealed that better initial sleep quality predicted higher levels of later physical activity beyond the effects of prior physical activity; whereas initial physical activity did not predict later sleep quality after accounting for prior sleep quality. These findings highlight sleep quality as an important contributor to a physically active lifestyle among older adults.