Depression in older adults is associated with a decreased quality of life, increased physical and emotional suffering and an increased risk of death and is often associated with declining physical health. Older people with physical illness have higher rates of depression and studies have also noted the particularly high rate of co-morbidity between depressive disorder and general medical conditions. However, other studies have shown those suffering from poor physical health do not necessarily become depressed and, in particular, the goal setting style of the individual impacts on the relationship between poor physical health and depression. This study argues that those who are conditional goal setters and suffer from poorer physical health will be more prone to depression as their perceived ability to achieve their goals is negatively impacted. One hundred and eighty-seven participants were recruited for this study. The participants completed the Centre for Epidemiological Studies Depression Inventory and the physical health subscale of the SF-12 Health Survey. Participants were asked to rank their three most important goals and to give the main reason for setting each of their top three goals. The results showed that poorer physical health is associated with higher depression scores. Correlations revealed significant negative associations between physical health and depression, physical health and progress towards goal and progress towards goal and depression. A partial correlation between physical health and depression scores controlling for progress demonstrated that the relationship between physical health and depression is mediated through perceived progress. Implications for clinical practice are highlighted. Copyright (c) 2007 John Wiley & Sons, Ltd.