The nature and extent of cognitive impairment was examined in 29 healthy elderly subjects (mean age 69.8 yr) with non-insulin-dependent diabetes mellitus (NIDDM) and 30 demographically similar nondiabetic community volunteers (mean age 68 yr). Measures of verbal learning, abstract reasoning, and complex psychomotor functioning were performed more poorly by diabetic than nondiabetic subjects. Conversely, there were no between-group differences in performance on tasks involving pure motor speed and simple verbal abilities. Within the diabetic group, individuals with poorer metabolic control performed more poorly on tasks involving learning, reasoning, and complex psychomotor performance, although this relationship was not evident for simple verbal or motor tasks. These data indicate that older people with NIDDM who are functioning well and perceive themselves as in good health are likely to manifest greater deficits than healthy elderly people in processing complex verbal or nonverbal material. Possible explanatory mechanisms are discussed, and directions for future research are explored.