OBJECTIVE: To examine the relation of type 2 diabetes to the level of function in five different cognitive systems in older individuals without dementia. RESEARCH DESIGN AND METHODS: Participants were 882 older men and women without dementia participating in the Rush Memory and Aging Project, a longitudinal clinical-pathological study of aging and dementia. They underwent uniform evaluations, which included clinical classification of dementia, and detailed cognitive function testing from which previously established summary measures of episodic memory, semantic memory, working memory, perceptual speed, visuospatial ability, and global cognition were derived. Diabetes was identified by history and direct medication inspection. RESULTS: Diabetes was present in 116 (13%) participants. In separate linear regression models controlling for age, sex, and education, diabetes was associated with lower levels of semantic memory (P < 0.001) and perceptual speed (P = 0.005), but not with episodic memory, working memory, or visuospatial ability or with a measure of global cognition. The associations of diabetes with cognition were reduced when controlling for several vascular variables, and the associations were substantially stronger in current smokers than in individuals who never smoked or formerly smoked. CONCLUSIONS: These results suggest that type 2 diabetes is associated with cognitive impairment, especially in semantic memory and perceptual speed and that these effects may be modified by smoking status.