Psychosis may pose a greater challenge than cognitive decline for patients with dementia and their caregivers. The nature and frequency of psychotic symptoms varies over the course of illness, but in most patients, these symptoms occur more often in the later stages of disease. Management of psychosis requires a comprehensive nonpharmacologic and pharmacologic approach, including an accurate assessment of symptoms, awareness of the environment in which they occur, and identification of precipitants and how they affect patients and their caregivers. Nonpharmacologic interventions include counseling the caregiver about the nonintentional nature of the psychotic features and offering coping strategies. Approaches for the patient involve behavior modification; appropriate use of sensory intervention; environmental safety; and maintenance of routines such as providing meals, exercise, and sleep on a consistent basis. Pharmacologic treatments should be governed by a "start low, go slow" philosophy; a monosequential approach is recommended, in which a single agent is titrated until the targeted behavior is reduced, side effects become intolerable, or the maximal dosage is achieved. Atypical antipsychotics have the greatest effectiveness and are best tolerated. Second-line medications include typical antipsychotics for short-term therapy; and, less often, anticonvulsants, acetylcholinesterase inhibitors, antidepressants, and anxiolytics. Goals of treatment should include symptom reduction and preservation of quality of life.