The ovarian hormone estrogen has long been used to treat the physical symptoms of menopause and to aid in the prevention of osteoporosis in postmenopausal women. Cumulative evidence from basic science and clinical research suggests that estrogen also plays a significant neuromodulatory and neuroprotective role. The numerous estrogenic effects in the brain include the modulation of synaptogenesis, increased cerebral blood flow, mediation of important neurotransmitters and hormones, protection against apoptosis, anti-inflammatory actions, and antioxidant properties. These multiple actions in the central nervous system support estrogen as a potential treatment for the cognitive decline associated with Alzheimer's disease (AD), the most common form of dementia. Evidence from epidemiological studies supports enhanced cognitive function in women with AD taking estrogen replacement therapy (ERT) as well as a reduced risk for developing AD in healthy women receiving ERT. Additional clinical evidence suggests that estrogen may modulate specific cognitive functions such as working memory and verbal learning and memory. However, results from more recent controlled trials have not consistently shown a beneficial effect of estrogen on the cognitive function of women with AD. Future research should focus on examining the influence of multiple potential mediators of ERT including the route of estrogen administration, form of estrogen (conjugated estrogens vs estradiol), duration of treatment, opposed versus unopposed estrogen and the use of estrogen analogues. Further, sensitive neuropsychological measures may provide more detailed information concerning the specific effects of estrogen on cognitive function. These important issues must be addressed in order to establish the role of estrogen for the prevention and treatment of AD in women.