The risk of dementia is increased in people with type 2 diabetes mellitus (T2DM). This review gives an update on the relation between T2DM and specific dementia subtypes – i.e. Alzheimer’s disease and vascular dementia – and underlying pathologies. We will show that while epidemiological studies link T2DM to Alzheimer’s disease as well as vascular dementia, neuropathological studies attribute the increased dementia risk in T2DM patients primarily to vascular lesions in the brain. Risk factors for dementia among patients with T2DM are also addressed. Currently, there is evidence that microvascular complications, atherosclerosis and severe hypoglycemic events increase dementia risk. However, for a more complete understanding of risk factors for dementia in T2DM a life time perspective is needed. This should identify which individuals are at increased risk, what are vulnerable periods in life, and what are windows of opportunity for treatment. Currently, there are no DM specific treatments for dementia, but we will review observations from clinical trials that tried to prevent cognitive decline through intensified glycemic control and address other clinical implications of the association between T2DM and dementia.