Lower extremity muscle strength (LEMS) and body balance (BB) are essential for older adults to maintain an upright posture and autonomously perform their basic activities of daily living. This study aimed to examine whether LEMS and BB mediate the relationship between physical activity (PA) and health-related quality of life (HRQoL) in a large sample of community-dwelling older adults. This is a cross-sectional study carried out with 802 individuals, 401 males and 401 females (69.8 ± 5.6 years), residents of the Autonomous Region of Madeira, Portugal. PA and HRQoL were assessed by the Baecke Questionnaire and e SF-36, respectively. LEMS was assessed by the Senior Fitness Test and BB by the Fullerton Advance Balance (FAB). The serial mediation pathway model pointed out that LEMS and BB partially mediated the association between PA and HRQoL in approximately 39.6% and 47%, respectively. The total variance in HRQoL explained by the entire model was 98%. Our findings may indicate the role that LEMS and BB play in the relationship between PA and HRQoL in the older population.