In a population-based study of dementia, the cost of care for 245 demented elderly and 490 controls matched by age and gender was estimated. Dementia of Alzheimer's type was diagnosed according to the NINCDS-ADRDA criteria, and vascular dementia and other types of dementia were diagnosed according to the DSM-IIIR criteria. Severity of dementia was determined by the Clinical Dementia Rating scale. The annual cost of medical care, domestic care, home help, nursing home and special equipment for nondemented patients was DKK 22,000 per person while the cost for very mildly, mildly, moderately and severely demented patients was DKK 49,000, DKK 93,000, DKK 138,000 and DKK 206,000, respectively. Except for very mild dementia the cost did not differ between elderly who suffer from Alzheimer's disease and those with other types of dementia. The net cost of dementia is the difference in cost between those with dementia and the matched controls and amounts on average to DKK 77,000 per person per year. However, priority setting cannot be based on the cost of dementia per se, but only on the cost of a specific dementia intervention compared to its health benefit.