This paper addresses the questions of whether depression compromises cognition in the elderly and whether discernable patterns of cognitive performances could be differentiated between patients with severe depression and those with organic dementia. Published data on geriatric depression and cognitive functioning are divided in demonstrating a depression effect. Further examination and external validation by new data show that the depression effect on discrete cognitive tasks is (1) small, and (2) sensitive to the confounding of sampling and task variables. Future research must take these factors into account. Patterns of cognitive functioning in depression and dementia are different and can be differentiated using a variety of measures. This review finds the term pseudodementia inappropriate and misleading and recommends that it be abandoned.