Measures of stepping volume and rate are common outputs from wearable devices, such as accelerometers. It has been proposed that biomedical technologies, including accelerometers and their algorithms, should undergo rigorous verification as well as analytical and clinical validation to demonstrate that they are fit for purpose. The aim of this study was to use the V3 framework to assess the analytical and clinical validity of a wrist-worn measurement system of stepping volume and rate, formed by the GENEActiv accelerometer and GENEAcount step counting algorithm. The analytical validity was assessed by measuring the level of agreement between the wrist-worn system and a thigh-worn system (activPAL), the reference measure. The clinical validity was assessed by establishing the prospective association between the changes in stepping volume and rate with changes in physical function (SPPB score). The agreement of the thigh-worn reference system and the wrist-worn system was excellent for total daily steps (CCC = 0.88, 95% CI 0.83–0.91) and moderate for walking steps and faster-paced walking steps (CCC = 0.61, 95% CI 0.53–0.68 and 0.55, 95% CI 0.46–0.64, respectively). A higher number of total steps and faster paced-walking steps was consistently associated with better physical function. After 24 months, an increase of 1000 daily faster-paced walking steps was associated with a clinically meaningful increase in physical function (0.53 SPPB score, 95% CI 0.32–0.74). We have validated a digital susceptibility/risk biomarker—pfSTEP—that identifies an associated risk of low physical function in community-dwelling older adults using a wrist-worn accelerometer and its accompanying open-source step counting algorithm.