The functional cortical hierarchy of the human brain, a fundamental principle of brain organization, has been extensively characterized during resting state for healthy younger adults. However, functional re-organization during naturalistic settings, such as movie-watching, and its alterations across the adult lifespan remains poorly understood. Using resting-state and movie fMRI data from two large datasets, Cam-CAN (N=416) and DyNAMiC (N=156), this study conducted a comprehensive comparison of brain organization across two states. We identified a robust reorganization with compression of functional gradients from rest to movie-watching states, which is mediated by changes in functional integration and segregation of brain networks. The extent of compression from rest to movie was significantly greater in older adults and predicted worse cognitive performance among the elderly population. Our findings provide novel insights into how macroscale brain hierarchy is reorganized during naturalistic processing, and how this reorganization during aging impacts cognitive processes, offering a deeper understanding of the neural basis of aging and cognition.