Declining fitness () is a hallmark of ageing and believed to arise from decreased oxygen delivery and reduced muscle oxidative capacity. Physical activity is a modifiable lifestyle factor that is critical when evaluating the effects of age on parameters of fitness and energy metabolism. The objective was to evaluate the effects of age and sex on , muscle mitochondrial physiology, and physical activity in young and older adults. An additional objective was to assess the contribution of skeletal muscle oxidative capacity to age‐related reductions in and determine if age‐related variation in and muscle oxidative capacity could be explained on the basis of physical activity levels. In 23 young and 52 older men and women measurements were made of , mitochondrial physiology in permeabilized muscle fibres, and free‐living physical activity by accelerometry. Regression analyses were used to evaluate associations between age and , mitochondrial function, and physical activity. Significant age‐related reductions were observed for (P < 0.001), but not muscle mitochondrial capacity. Total daily step counts did not decrease with age, but older adults showed lower moderate‐to‐vigorous physical activity, which was associated with (R² = 0.323, P < 0.001) and muscle oxidative capacity (R² = 0.086, P = 0.011). After adjusting for sex and physical activity, age was negatively associated with but not muscle oxidative capacity. Healthy older adults exhibit lower but preserved mitochondrial capacity compared to young. Physical activity, particularly moderate‐to‐vigorous, is a key factor in observed age‐related changes in fitness and muscle oxidative capacity, but cannot entirely explain the age‐related reduction in .