Dementia and depression are frequently comorbid among older adult patients. Depression is related to cognitive decrement and can even represent the first signs of a neurodegenerative process. It can be difficult to distinguish depressed patients exhibiting the first signs of dementia from those whose cognition will improve with treatment. In this article, studies from the neuropsychological literature are reviewed that aid in accurate diagnosis and prognosis. Furthermore, the relationship between depression and dementia is explored by examining potential neurobiological mechanisms that may potentiate both syndromes in the context of the ongoing debate on depression as a prodrome and/or a risk factor for dementia. This article is concluded with suggestions for clinicians when deciding who to refer for neuropsychological assessment and with ideas for further research that might promote a better understanding of the complex association between depression and dementia during old age.