This study examined whether the onset of functional limitations shapes older Chinese’ friendship characteristics and whether gender, education, and place of residence moderate the association. The study used two waves of China Longitudinal Aging Social Survey (2016 as T1 and 2018 as T2) and included 6,954 older Chinese who were free of functional limitations at T1. Friendship was assessed as contact frequency with friends, instrumental support from friends, and emotional support from friends. Functional limitations were assessed as the development of basic (ADL) and instrumental (IADL) activities of daily living limitations. Ordinal logistic regression results showed older Chinese adults with the onset of ADL and IADL limitations over a two-year period were associated with a reduced number of friends available to contact or meet and to provide emotional support, but not instrumental support. Further, the association between functional limitations and friendship characteristics was stronger among older adults who were more educated and who living in rural areas than among those who were less educated and who residing in non-rural areas.