The potential long-term benefits of estrogen replacement therapy (ERT) in the prevention of osteoporosis and heart disease have been reasonably well established. However, the favorable effects of ERT on cognitive function and prevention of senile dementia in old age now represents a revitalized area of clinical research. A growing body of experimental evidence has recently provided the neurobiologic basis to support the hypothesis that gonadal hormones such as estrogen have psychologic effects on human brain function and behavior. Studies in women who have undergone surgical menopause have demonstrated that the menopause is associated with subclinical cognitive and affective dysfunction, which is improved by ERT. In addition, a growing body of evidence suggests that estrogen may be an effective therapy for senile dementia in some elderly women. Recent epidemiologic studies have indicated that long-term postmenopausal ERT may prevent late-life cognitive dysfunction in older women. Several clinical trials employing oral estrogen therapy have also observed that some aged women with senile dementia have improved cognitive and affective function after estrogen therapy. Estrogen loss resulting in cognitive disorders, including menopausal cognitive dysfunction and senile dementia in late life, may act via several mechanisms. Estrogen may be an important growth factor for estrogen-responsive neurons. Estrogen therapy may also have substantial neurochemical effects, direct effects on the vasculature, and effects on the generation of free radicals, which may be toxic to neurons. At this time, several important clinical questions need to be answered regarding the role of ERT in the cognitive and affective dysfunctions associated with menopause and senile dementia. Should estrogen be used for menopausal women whose sole complaint is cognitive or affective dysfunction? Does long-term ERT prevent cognitive decline in late life if initiated at the time of menopause? Can ERT improve cognition and affective function in postmenopausal women with Alzheimer's disease, and does estrogen therapy prevent the progression of Alzheimer's disease in these patients? Finally, do the vascular effects of estrogen play a role in the treatment or prevention of both Alzheimer's disease and vascular dementia?