Type II diabetes mellitus (DM2) is associated with an increased risk of cognitive dysfunction and dementia. The increased risk of dementia concerns both Alzheimer's disease and vascular dementia. Although some uncertainty remains into the exact pathogenesis, several mechanisms through which DM2 may affect the brain have now been identified. First, factors related to the 'metabolic syndrome', a cluster of metabolic and vascular risk factors (e.g. dyslipidaemia and hypertension) that is closely linked to DM2, may be involved. A number of these risk factors are predictors of cerebrovascular disease, accelerated cognitive decline and dementia. Secondly, hyperglycaemia may be involved, through adverse effects of potentially 'toxic' glucose metabolites on the brain and its vasculature. Thirdly, insulin itself may be involved. Insulin can directly modulate synaptic plasticity and learning and memory, and disturbances in insulin signalling pathways in the periphery and in the brain have recently been implicated in Alzheimer's disease and brain aging. Insulin also regulates the metabolism of beta-amyloid and tau, the building blocks of amyloid plaques and neurofibrillary tangles, the neuropathological hallmarks of Alzheimer's disease. In this paper, the evidence for the association between DM2 and dementia and for each of these underlying mechanisms will be reviewed, with emphasis on the role of insulin itself.