Declines in the ability to process context information may represent a fundamental mechanism of age-related cognitive changes. Two components of context processing--activation/updating and maintenance--were examined in a sample of healthy younger and older adults, along with individuals suffering from early stage dementia of the Alzheimer's type (DAT). All older adult groups showed context activation/updating impairments, whereas context maintenance was only impaired in the oldest adults (age>75 years) and was further exacerbated in DAT individuals. The results suggest that context processing may be composed of functionally dissociable components and point to the utility of this construct in understanding the timecourse of cognitive decline in healthy and pathological aging.