Older people experience sensory, cognitive, and social deficits that adversely affect their interaction with the environment. Design of institutions for the elderly resident should be prosthetic to ensure that environments optimally accommodate the functioning of the residents. The sensory and cognitive state of the residents should be considered in every facility. This review discusses how sensory and cognitive changes in aging affect orientation and wayfinding as well as how the physical aspects of the environment can accommodate these changes to reduce confusion and disorientation. Environmental features that promote social interaction are reviewed. Because the environmental needs and unique characteristics of the cognitively impaired resident differs from that of the nonimpaired resident, special issues in the design of facilities for demented residents are reviewed. Conclusions are offered with regard to research needs and applied problems.