Dementia has reached epidemic proportions. The large numbers of people affected and the major impact that this disease has on healthcare costs are still not fully appreciated by the general public, governments or healthcare providers. Prevalence rates are expected to continue to escalate because of the dramatic aging of the population in many nations. This could create serious economic problems for already strained healthcare systems around the world. Fortunately, medications suitable for widespread use appear to be on the horizon. As therapies are developed, it will be necessary to assess their impact on individuals, healthcare systems and societies. The latter two refer to pharmacoeconomic research, an area in which a careful examination of issues central to the design and interpretation of such analyses must now be undertaken. This article outlines the critical components in the application of pharmacoeconomic methodology to the field of dementia research. Specifically, the accuracy of a pharmacoeconomic study is affected by the prevalence data and the economic methodology used. The outcome measures used in efficacy, effectiveness and pharmacoeconomic studies must be carefully chosen to ensure that they are valid, reliable and sensitive to change. These measures must also be meaningful to patients, families and clinicians. In the future, dementia therapies may prevent, delay, cure or slow the progression of the disease, and may also help control symptoms. It is important to study the impact of these effects from the perspectives of the patient, family and society. Dementias are important in terms of the number of people affected and the degree of suffering experienced, as well as the considerable financial burdens placed on families and society. Pharmacoeconomic analyses will have a significant influence on healthcare decisions affecting people with dementia. To ensure that these future decisions are in the best interests of patients, families and society, clinical knowledge of dementias must be incorporated into the design of pharmacoeconomic studies. Collaboration between clinicians, researchers and economists is essential in assessing future pharmacotherapies for dementing illnesses.