Cerebrovascular disease may be causal or a vulnerability factor in late-onset depression and may explain the high rate of depression in older adults with diabetes. We explored a wide range of potential explanatory variables of depression in a longitudinal study of older diabetic subjects to investigate the vascular depression hypothesis in these patients. We recruited 207 subjects with diabetes selected for potential cognitive deficits from an existing observational cohort study (average age 75.7 +/- 4.6 years, 52.2% men) for an assessment of depression using a standardised diagnostic instrument (Cambridge Examination for Mental Disorders of the Elderly -- Revised). All subjects underwent a detailed clinical assessment at baseline and at follow-up (after 7.5 +/- 1.1 years). Major depression was present in 45 subjects (21.7%) and minor depression in ten (4.8%). A positive history of strokes and the presence of peripheral arterial disease were significantly associated with depression at the time of diagnosis. In a subsample of 93 cases who underwent structural neuroimaging, the presence of cerebral infarcts was also significantly associated with depression. Treatment with glucose-lowering therapy, higher serum cholesterol levels and difficulties with activities of daily living at baseline were significant predictors of depression at follow-up. A history of cerebrovascular disease was strongly associated with depression and cerebrovascular risk factors were significant predictors of depression in older diabetic patients. Our findings are consistent with the hypothesis that the excess risk of depression in older diabetic patients is related to underlying cerebrovascular disease.