Background: Bed rest with limited physical activity is common during admission. The aim was to determine the association between daily step count and physical activity levels during and after admission with community-acquired pneumonia (CAP) and the risk of readmission and mortality. Methods: A prospective cohort study of 166 patients admitted with CAP. Step count and physical activity were assessed with accelerometers during and after admission and were categorised as sedentary, light, or moderate-vigorous physical activity. Linear regression was used to assess the association between step count and length of stay. Logistic regression was used to assess the association between step count, physical activity level, and risk of readmission and mortality. Results: Patients admitted with CAP were sedentary, light physically active, and moderate-to-vigorous physically active 96.4%, 2.6%, and 0.9% of their time, respectively, with 1356 steps/d. For every 500-step increase in daily step count on day 1, the length of stay was reduced by 6.6%. For every 500-step increase in daily step count during admission, in-hospital and 30-day mortality was reduced. Increased light and moderate-to-vigorous physical activity during admission were associated with reduced risk of in-hospital and 30-day mortality. After discharge, patients increased their daily step count to 2654 steps/d and spent more time performing light and moderate-to-vigorous physical activity. For every 500-step increase in daily step count after discharge, the risk of readmission was reduced. Higher moderate-to-vigorous physical activity after discharge was associated with a reduced risk of readmission. Conclusions: Increased physical activity during admission was associated with a reduced length of stay and risk of mortality, whereas increased physical activity after discharge was associated with a reduced risk of readmission in patients with CAP. Interventions focusing on increasing physical activity levels should be prioritised to improve the prognosis of patients admitted with CAP.