Depression and cognitive impairment are both common conditions in old age, and frequently occur together. However, accurate figures of the co-occurrence are not available. The inter-relationship between the two clinical entities is still complex and not well understood. Clearly depression can be a psychological reaction to cognitive decline, and thus may also appear as an early symptom in dementing individuals. However, recent data suggest that depression, and in particularly late-life depression, can also be a risk factor for Alzheimer's disease (AD). The relationship between the two clinical entities should be seen in view of observations of white matter changes both in AD and in depression. Since these white matter changes are thought to frequently reflect vascular changes, the concept of "vascular depression" has been advanced. Vascular changes in the brain occur commonly in demented individuals and conversely depression is frequent co-occurrence in vascular disease. Additionally neurotransmitter loss may occur in both, particularly monoaminergic disturbances which is characteristic of depression but may occur also in AD. The same is true for hippocampal atrophy, which is characteristic of AD but has also been described in depression. Here we review the complex relationships between dementia and depression and suggest that excessive release of corticosteroids may have a neurotoxic effects.