Background: Even in generally wealthy Western countries material deprivation and poverty are not uncommon. There is, however, little data on the prevalence of material deprivation and its associations with health-related dysfunction in older people. Methods: Cross-sectional data from the SMILE study were used to examine the prevalence of material deprivation and the associations between material deprivation and health-related dysfunction in persons aged 55 years and older ( n > 4000). Material deprivation was measured with a comprehensive questionnaire assessing seven subdomains referring to current and anticipated financial problems and poverty in childhood. Health-related dysfunction was measured using the SF36-based physical and mental components. In addition, self-reported heart disease was examined as an indicator of health-related dysfunction as well. Results: Almost 29% of subjects experienced at least one financial problem. Those reporting material deprivation had more than twice the risk of physical (OR = 2.22; 95% CI: 1.72–2.86) and mental (OR = 2.34; 95% CI: 1.84–2.97) dysfunction compared with non-deprived persons. A slightly weaker association was found when self-reported heart disease was used as an outcome variable (OR = 1.74; 95% CI: 1.40–2.15). Although odds ratios were generally higher for diseased older persons, no significant interaction effect between chronic disease and material deprivation subscales was found. Conclusions: Material deprivation in the Netherlands is not uncommon and is strongly related to both mental and physical dysfunction, and therefore needs further attention in public health policy. Longitudinal research is necessary to clarify the causal nature of our results and to develop appropriate interventions.