This study compared the odds of becoming disabled and recovering from disability among blacks and whites aged 65 years and over in two sites of the Established Populations for Epidemiologic Studies of the Elderly (EPESE) project. The authors examined the influence of mortality differences, socioeconomic status, and health-related factors on racial differences in risk of disability and recovery. A Markov model was employed using nine waves of data from the New Haven, Connecticut, site (529 blacks, 2,219 whites) and seven waves of the North Carolina (Piedmont) site (2,260 blacks, 1,876 whites), collected between 1982 and 1992. Blacks below age 75 years had an increased risk of developing disability relative to whites in New Haven (odds ratio (OR) at age 65 years = 3.33, 95% confidence interval (CI) 2.13-5.22) as well as in North Carolina (OR at age 65 years = 1.58, 95% CI 1.25-1.99). This excess risk diminished with increasing age, and crossed over in New Haven (OR at age 85 years = 0.45, 95% CI 0.22-0.95), but not in North Carolina (OR at age 85 years = 1.22, 95% CI 0.98-1.51). Adjustment for socioeconomic and health-related factors only partially reduced the excess disability risk among blacks below age 75 years in New Haven, but eliminated the difference in disability risk between blacks and whites in North Carolina. Blacks below age 75 years also had higher mortality risks at both sites. There were no consistent racial differences in recovery from disability.