Thirty‐four elderly residents of local authority homes (mean age 83) with depressive symptoms, some with a primary clinical diagnosis of dementia, others with a primary clinical diagnosis of depression, were further investigated and followed up in order to determine the validity of these diagnostic groupings. The two clinical diagnostic subgroups could not be distinguished by neuroradiological appearance on computed tomography and while those with dementia generally performed worse on psychometric testing, there was no statistically significant overall difference in the psychometric scores between the groups. Prognosis for those subjects with depressive symptoms was poor. There were no differences in outcome between those with a primary diagnosis of depression and those with a primary diagnosis of dementia, with only five subjects showing evidence of improvement in depressive symptomatology at one‐and two year follow‐up. These data question the validity and clinical usefulness of a strict categorical distinction between depression and dementia in the very old. Copyright © 1990 John Wiley & Sons, Ltd.