Type 2 diabetes and dementia in the elderly are major public health problems. Cross-sectional studies have suggested that these two conditions may be inter-related, but the nature of this association is uncertain. Causation can only be established through studies with a longitudinal design, taking into account the many potential confounding factors in any study of cognition. A literature search has identified 10 studies (nine population-based and one of case-controlled design) that included a definable diabetic population and assessments of cognitive function at baseline and at follow-up. These 10 studies utilised a combination of domain-specific cognitive assessments and a clinical diagnosis of dementia in the assessment of cognitive function. Diabetes was associated with either an accelerated cognitive decline or an increased incidence of dementia in eight of nine of the population-based studies. One study demonstrated a relationship between diabetes and vascular cognitive impairment, but not with other types of dementia. No association between type 2 diabetes and cognitive decline was demonstrated in the case-controlled study. These studies provide compelling evidence to support the view that people with type 2 diabetes are at increased risk of developing cognitive impairment in comparison with the general population.