Both diabetes and Alzheimers disease are growing problems in the world and have substantial impact on the quality of life. They share a number of common features. Usually diabetic patients are not routinely assessed for cognitive function. Several studies have linked dementia to diabetes. However, some studies have found no link between diabetes and dementia. In addition to the duration of diabetes, hypertension, dyslipidemia, small vessel diseases of brain, APOE, defect in cerebral insulin receptors signaling and role of insulin like growth factorI (IGF I) and insulin degrading enzymes (IGF I) have been postulated as possible mechanism for the cognitive decline in diabetes. Recently, several studies have been done to co relate the direct effect of insulin on brain. Studies have shown that insulin is required for learning and memory. Insulin affects the metabolism of Aβ (Amyloid beta) and tau proteins, the building blocks for amyloid plaques and neuro fibrillary tangles in the brain, the major pathological findings of Alzheimers disease. Based on these facts, drugs like statins, anti diabetic drugs etc have been tried. The preventing measures should include control of diabetes, vascular risk factors and therapy directed towards insulin metabolism. More studies are required to find the exact pathophysiological mechanism of cognitive decline in diabetes, so as to have a therapeutic intervention at the appropriate time and prevent the cognitive dysfunction and thereby reduce the burden of the disease and health care costs. In this review the possible pathophysiology linking diabetes and cognitive dysfunctions and possible therapeutic interventions are discussed. This review also discusses some recent patents related to the field.