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Objective: The purpose o f this study is to compare the quality of life, physical, mental and social performance of older adults who live in communities and those who are institutionalized in nursing homes of Esfahan city. Method: In this cross sectional research, 160 older adults comprising of 80 elder people living with families and 80 elder people residing in nursing homes of Esfahan city, all being 60 years of age or older , were studied in 2008. Those who, for any reason, could not answer the questionnaire were excluded from the study. The tools used for compiling data consisted of two questionnaires. the first questionnaire asked for the demographic details, and the second one was Leipad Elderly Quality of Life questionnaire. The study was carried out by visiting nursing homes and dropping by the homes of the elderly, both through simple random sampling. The purpose of the study was explained and the informed consents of participants were obtained. Findings: The average scores for total quality of life (p=0.001), physical aspect (p=0.001), and social performance (p=0.006), in older adults living with their families were significantly more than those of institutionalized older adults. Conclusion: For a better quality of life, elder population is preferred to live with their families than to be institutionalized.