BACKGROUND: Psychotic symptoms in Alzheimer disease (AD + P) identify a heritable phenotype associated with greater cognitive impairment. Knowing when the cognitive course of AD + P subjects diverges from that of subjects without psychosis would enhance understanding of how genetic variation results in AD + P and its associated cognitive burden. This study seeks to determine whether the degree of cognitive impairment and cognitive decline in early AD predicts subsequent AD + P onset. METHODS: 361 subjects with possible or probable AD or mild cognitive impairment (MCI) without psychosis were evaluated every 6 months until psychosis onset. RESULTS: Severity of cognitive dysfunction was a strong predictor of AD + P up to two years prior to psychosis onset. Cognition did not decline more rapidly prior to onset of AD + P. CONCLUSIONS: Individuals who will develop AD + P already demonstrate excess cognitive impairment during the mild stages of disease. Genetic variation and brain pathophysiology may lead to a cognitive risk phenotype which is present prior to dementia onset.