Abstract: The data of Chinese Family Panel Studies has been used to analyze the effect of physical exercise on improving the rural residents' living quality and its potential mechanism. It is found that physical exercise could significantly improve the living quality of rural residents and was an important means of improving the living standard of rural residents. And, after a series of robustness tests including heterogeneity analysis, full-model estimation, replacement of explained variables and explanatory variables, the addition of control variables and endogenous problem treatment, this conclusion is still valid. The potential transmission pathway suggests that physical exercise participation could enhance the living quality of rural residents by improving farmers' health, social capital and psychological capital, with psychological capital playing a particularly important role. Accordingly, suggestions are put forward from the aspects of improving the understanding of the significance of physical exercises, promoting the deep integration of physical exercise and health, giving play to the role of rural sports organizations, and carrying out sports activities to enhance the rural residents' social capital and psychological capital.