Persons with type 2 diabetes are at an increased risk of dementia compared to those without, but the etiology of this increased risk is unclear. Cerebral microvascular disease may mediate the link between diabetes and dementia. Given the anatomical and physiological similarities between cerebral and retinal microvessels, we examined the longitudinal association between diabetic retinal disease and dementia in patients with type 2 diabetes. Longitudinal cohort study of 29,961 patients with type 2 diabetes aged ?60 years. Electronic medical records were used to collect diagnoses and treatment of severe diabetic retinal disease (i.e., diabetic proliferative retinopathy and macular edema) between 1996-1998 and dementia diagnoses for the next ten years (1998-2008). The association between diabetic retinal disease and dementia was evaluated by Cox proportional hazard models adjusted for sociodemographics, as well as diabetes-specific (e.g., diabetes duration, pharmacotherapy, HbA1c, hypoglycemia, hyperglycemia) and vascular (e.g., vascular disease, smoking, body mass index) factors. 2,008 (6.8%) patients had severe diabetic retinal disease at baseline and 5,173 (17.3%) participants were diagnosed with dementia during follow-up. Those with diabetic retinal disease had a 42% increased risk of incident dementia (demographics adjusted Hazards Ratio (HR) = 1.42, 95% Confidence Interval (CI) 1.27, 1.58); further adjustment for diabetes-specific (HR 1.29; 95% CI 1.14, 1.45) and vascular-related disease conditions (HR 1.35; 95% CI 1.21, 1.52) attenuated the relation slightly. Diabetic patients with severe diabetic retinal disease have an increased risk of dementia. This may reflect a causal link between microvascular disease and dementia.