The concept of psychosis of Alzheimer's disease and dementia is developed with respect to prevalence, incidence, clinical characteristics, clinical course, and potential response to treatment. Psychosis frequently occurs subsequent to the onset of dementia. Published prevalence estimates of psychosis in patients with AD range from 10 to 73% with an overall median of 34% within clinic populations, and from 7 to 20% in community and clinical trials populations depending on definitions used. Among people with AD who have no psychotic symptoms there appears to be an annualized incidence of psychosis of about 20% in outpatients, and a much higher rate in nursing home patients. Female gender, somewhat greater cognitive impairment among outpatients, somewhat lesser cognitive impairment among nursing home patients, and physical aggression are more associated with psychotic signs and symptoms than not. Right frontal hypometabolism and greater frontal neuropsychological deficits occur in AD patients with psychosis in comparison to those without. Among nursing home patients with dementia who have clinically significant agitation, the substantial majority have delusions or hallucinations. Among patients in nursing homes with dementia and psychosis, nearly two-thirds have persistent symptoms over at least 12 weeks, and among outpatient studies, hallucinations and delusions may persist in approximately 40-50% over periods of 3 months to one year. There is some evidence that psychotic symptoms improve modestly with antipsychotic medication treatment. There is sufficient descriptive and empirical research to support the validity of a syndrome of psychosis of Alzheimer's disease.