Background: Impaired functional status is a risk factor for hospitalization in patients with community-acquired pneumonia (CAP). The aim was to determine the influence of functional status and physical activity level on severe outcomes, including length of stay, admission to the intensive care unit (ICU), readmission, and mortality in patients with CAP. Methods: A prospective cohort study among patients hospitalized with CAP. Functional status was assessed with the Barthel index and grip strength, and physical activity level was assessed using the international physical activity questionnaire. Linear regression was used to assess the association with length of stay, and logistic regression was used to assess the risk of severe outcomes. Results: Among 355 patients admitted with CAP, 18% had a low Barthel index (<80), 45% had a low grip strength, and 75% had a low physical activity level. Low Barthel index was associated with increased risk of ICU admission (OR 3.6, 95% CI 1.2–10.9), longer length of stay (27.9%, 95% CI 2.3–59.7%), readmission within 30, 90, and 180 days (OR 2.1–2.4, p < 0.05), and mortality within 90 and 180 days (OR 4.2–5.0, p < 0.05). Low grip strength was associated with increased risk of 90 days readmission (OR 1.6, 95% CI 1.0–2.6, p < 0.05) and mortality within 30, 90, and 180 days (OR 2.6–3.2, p < 0.05). Low physical activity level was associated with increased risk of readmission within 90 and 180 days (OR 1.8–2.1, p < 0.05) and mortality within 30, 90, and 180 days (OR 3.3–5.5, p < 0.05). Conclusions: Impaired functional status and low physical activity level were associated with a longer length of stay and increased risk of ICU admission, readmission, and mortality in patients hospitalized with CAP. Routine assessment of functional status and physical activity level in clinical care could enable early identification of individuals with excess risk for a poor prognosis. Trial registration: ClinicalTrials.gov, NCT03795662.