Objective: Sexual minority women (lesbians, bisexual women, and women who partner with women) experience high rates of trauma exposure, are more likely to develop posttraumatic stress disorder (PTSD), and have high rates of physical health problems compared with heterosexual women. The present study tested whether PTSD may be the mechanism through which trauma exposure affects self-reported physical functioning in this population. Method: In a sample of 857 sexual minority women, we examined the association between trauma exposure and worsening physical functioning (measured using the 12-item Short Form Health Survey) 2 years later, whether PTSD mediated this relationship, and if so, which PTSD symptom clusters best accounted for this mediation. Results: Results showed that more Criterion A traumatic events experienced (based on DSM–IV) predicted greater decline in physical functioning 2 years later, and PTSD symptoms mediated this relationship, explaining 73% of the total effect. The arousal/reactivity symptom cluster was the only significant mediator, explaining 68% of the total effect. Conclusions: Results show that PTSD, and arousal/reactivity symptoms in particular, may be the mechanism through which traumatic events negatively impact self-reported physical functioning. These findings provide further evidence that, for this at risk population, treating PTSD as soon as possible after onset may improve long term physical functioning.