Diabetes mellitus is associated with cognitive deficits and an increased risk of dementia, particularly in the elderly. These deficits are paralleled by neurophysiological and structural changes in the brain. In animal models of diabetes, impairments of spatial learning occur in association with distinct changes in hippocampal synaptic plasticity. At the molecular level these impairments might involve changes in glutamate-receptor subtypes, in second-messenger systems and in protein kinases. The multifactorial pathogenesis of diabetic encephalopathy is not yet completely understood, but clearly shares features with brain ageing and the pathogenesis of diabetic neuropathy. It involves both metabolic and vascular changes, related to chronic hyperglycaemia, but probably also defects in insulin action in the brain. Treatment with insulin might therefore not only correct hyperglycaemia, but could also directly affect the brain.