Diabetes mellitus is associated with moderate cognitive deficits and neurophysiological and structural changes in the brain, a condition that may be referred to as diabetic encephalopathy. Diabetes increases the risk of dementia, particularly in the elderly. The emerging view is that the diabetic brain features many symptoms that are best described as "accelerated brain ageing." The clinical characteristics of diabetic encephalopathy are discussed, as well as behavioural (e.g. spatial learning) and neurophysiological (e.g. hippocampal synaptic plasticity) findings in animal models. Animal models can make a substantial contribution to our understanding of the pathogenesis, which shares many features with the mechanisms underlying brain ageing. By unravelling the pathogenesis, targets for pharmacotherapy can be identified. This may allow treatment or prevention of this diabetic complication in the future. We discuss changes in glutamate receptor subtypes, in second-messenger systems and in protein kinases that may account for the alterations in synaptic plasticity. In addition, the possible role of cerebrovascular changes, oxidative stress, nonenzymatic protein glycation, insulin and alterations in neuronal calcium homeostasis are addressed.