Depression and dementia are among the most common psychiatric syndromes diagnosed in elderly. Cognitive impairment is seen in both disorders, this may pose a challenge in differential diagnosis, but cognitive impairment is reversible in depression while progressive in dementia. Comorbid conditions are frequently seen in older people, depression in elderly may also present with different symptoms from young adults and this may be a challenge for the clinician. Changes in cognitive functions with advancing age, somatic symptoms, appetite and sleep changes frequently seen in healthy elderly must also be taken into account while differentiating normal and pathologic. Late-onset elderly depressions has distinctive cognitive features from early-onset conditions, there are observations and findings that especially late-onset depressions with comorbid cerebrovascular disorders will eventually result in dementia. Upon those obversations "vascular depression" hypothesis is introduced. in this article clinical features, neuropsychological profile and neuroimaging findings helpful in differential diagnosis of depression and dementia will be reviewed.