Frailty status can be improved by intervention. Both exergaming and combined exercise have been proposed for improving physical performance in community-dwelling elderly. However, whether frailty status can be improved by exergaming is unclear. Moreover, whether Kinect-based exergaming training can exert a stronger effect on improving frailty status than combined exercise needs to be established. The aim of this study was to investigate the effects of Kinect-based exergaming on improving frailty status and physical performance in the prefrail and frail elderly by comparing its effects with those of combined exercise. Fifty-two prefrail and frail elderly were recruited and randomized to the Kinect-based exergaming group (EXER group) or combined exercise group (CE group), emphasizing resistance, aerobic, and balance training for 36 sessions over 12 weeks. Our results showed that both groups improved the frailty status (EXER group: p = 0.016, effect size = 2.29; and CE group: p = 0.031, effect size = 2.67). Three out of 5 physical characteristics of the frailty phenotype, namely, weakness, slow walking speed, and low activity level, were significantly reversed by both exergaming and combined exercise. However, the exergaming training also significantly reversed exhaustion. Furthermore, compared with the CE group, the EXER group showed greater improvement in dynamic balance control, as indicated by the forward reaching test (p = 0.0013, effect size = 0.40) and single leg stance test (p = 0.049, effect size = 0.42). Thus, Kinect-based exergaming exerted effects that were at least as beneficial as those of combined exercise in improving frailty status and the frailty phenotype. We recommend the use of exergaming aided by Kinect in the prefrail and frail elderly.