People with diabetes mellitus are at increased risk of cognitive dysfunction and dementia. This review explores the nature and severity of cognitive changes in patients with type 2 diabetes. Possible risk factors such as hypo- and hyperglycemia, vascular risk factors, micro- and macrovascular complications, depression and genetic factors will be examined, as well as findings from brain imaging and autopsy studies. We will show that type 2 diabetes is associated with modest cognitive decrements in non-demented patients that evolve only slowly over time, but also with an increased risk of more severe cognitive deficits and dementia. There is a dissociation between these two 'types' of cognitive dysfunction with regard to affected age groups and course of development. Therefore, we hypothesize that the mild and severe cognitive deficits observed in patients with type 2 diabetes reflect separate processes, possibly with different risk factors and aetiologies.