This article discusses theoretical, psychometric, and practical considerations of quality of life assessment in older adults with cognitive impairment. It describes a new measure of quality of life in dementia, the QOL-AD, and examines the reliability and validity of patient and caregiver reports of patient quality of life. Subjects were 177 patient/caregiver dyads. Patient Mini Mental State Exam scores ranged from 0 to 29, with a mean score of 16 (SD = 7). Each patient and caregiver rated the patient's quality of life on the QOL-AD. Patient functional and cognitive status, psychological state, physical function, and behavior problems were also assessed. Reliability and validity of patient QOL-AD reports were examined across three levels of cognitive impairment. One hundred, fifty-five patients were able to complete the QOL-AD. Completers scored between 4 and 29 on the Mini Mental State Exam, whereas noncompleters all scored 10 or lower. Reliability for both patient and caregiver reports on the QOL-AD was good (alpha values ranged from 0.83 to 0.90). Validity of patient and caregiver reports across cognitive levels was supported by correlation with measures of depression (r = -0.41 to -0.65), day-to-day functioning (r = -0.10 to -0.45), and pleasant events frequency (r = 0.18 to 0.51). Intraclass correlation between patient and caregiver reports was positive across all cognitive levels (r = 0.14 to 0.39). The QOL-AD seems to be reliable and valid for individuals with MMSE scores greater than 10. Further research is needed to clarify the relationship between patient and caregiver reports of patient quality of life and to identify factors that influence quality of life throughout the progression of dementia.