Dementia is becoming increasingly common in western societies and carries with it a substantial clinical, social and economic burden. It is now well established that type 2 diabetes is a risk factor for dementia and it is likely that this association has a multifactorial aetiology. There is a relative paucity of data on interventions to improve cognitive function in people with type 2 diabetes. Two small randomized controlled trials have suggested that better glycaemic control, over a relatively short time period, can improve or prevent decline in cognitive function. There is also increasing interest in the link between intracerebral insulin and cognitive impairment. Several studies have suggested that relative and/or absolute deficiency of insulin may occur in Alzheimer's dementia and, although one small randomized trial was essentially negative, randomized trials are currently underway to investigate the impact of thiazolidinediones on cognitive function in dementia. The hypothalamic-pituitary-adrenal axis is also activated in people with type 2 diabetes and there are data linking increased cortisol concentrations with cognitive impairment. Inhibition of the 11 beta-hydroxysteroid dehydrogenase type 1 enzyme, which generates cortisol from inactive cortisone in many tissues including the brain, is an attractive therapeutic target to enhance cognition. Large-scale epidemiological and intervention studies are now underway, which should enhance our understanding and management of cognitive impairment in type 2 diabetes.