Background: Preclinical cognitive changes may predict an increased risk of dementia, allowing selection of subgroups as possible targets for preventive or therapeutic interventions. Objective: To evaluate the predictive effect of daily functioning and motor performance (MP) on the progression to dementia in normal cognition, cognitive impairment, no dementia (CIND), and mild cognitive impairment (MCI). Methods: The Italian Longitudinal Study on Aging is a large population-based survey on age-related diseases of the cardiovascular and nervous systems. After the baseline assessment, to detect prevalent cases of cognitive impairment and dementia, participants were re-examined at 4-year and 8-year follow-ups. Functional independence was evaluated using the Index of Activities of Daily Living (ADL) and the Instrumental Activities of Daily Living (IADL) Scale. A six-test battery was used to assess MP. Results: Overall, 2,386 individuals were included, for a total of 16,545 person-years. Eight-year incidence of dementia (per 1,000 person-years) was 12.69 in total sample, 9.86 in subjects with normal cognition at baseline, 22.99 in CIND, and 21.43 in MCI. Progression to dementia was significantly higher with increasing baseline ADL and IADL impairment, and with a worse MP. In Cox regression analyses controlled for demographics and major age-related conditions, increased IADL impairment was the stronger predictor of progression to dementia (p < 0.001), with HR ranging from 2.16 (95% CI, 0.82–5.70) to 9.57 (95% CI, 3.40–26.91) in subjects with MCI at baseline. Conclusions: Inclusion of IADL in the MCI construct significantly improves the prediction of dementia. Individuation of different transition rates is required to plan cost-effective interventions.