“Aging in place”-older adults staying in a familiar environment to age-is an emerging concept in China. This study aims to investigate the impacts of the layered environment-home and neighborhood-on cognitive functioning of older Chinese adults by utilizing the theoretical framework of the person-environment fit (P-E fit). The 2011 China Health and Retirement Longitudinal Study (CHARLS) is employed (n = 12, 293; 50+). Home environment includes built environment (deficiency index on basic infrastructure, e.g., no flushable toilet) and social environment (living arrangement). Neighborhood environment includes the built environment (deficiency index on infrastructure, e.g., no waste management) and being an urban/rural neighborhood. Three-level multilevel models show that older adults living in a more deficient home and neighborhood built environment have decreasing cognitive functioning, controlling for sociodemographic characteristics and health. Moreover, those living with grandchildren have worse cognitive functioning than those who live with spouse only, while there is no difference between multigenerational families and living with spouse only. Both home and neighborhood environment have additive effects on cognitive functioning. To conclude, the findings suggest that the layered environment is essential to cognitive functioning of older adults and implies that aging in place in China requires improvement of home and neighborhood built environments.