Background During the last two years, COVID-19 affected older people with dementia or mild cognitive impairment (MCI), but conflicting and sparse results are still present. The objective of this study was to investigate the frequency and type of changes in functional, cognitive and behavioral and psychological symptoms of dementia (BPSD), and caregiver’s stress during the period of quarantine in 2020 in patients affected by dementia/MCI living in Palermo, Sicily. Methods Outpatients affected by MCI/dementia were evaluated before and after COVID-19 quarantine. Functional status was investigated using basic and instrumental activities of daily living (ADL); cognitive performance with the mini-mental state examination; BPSD through the neuropsychiatric inventory (NPI). All scales were reported as pre/post-COVID-19 quarantine and a logistic regression analysis was performed for investigating the factors associated with worsening in NPI in patients and their caregivers. Results One hundred patients (mean age 77.1; females = 59%) were evaluated over a median of 10 months. In the sample as whole, a significant decline in functional and cognitive status was observed (p < 0.001 for both comparisons). The NPI significantly increased by 3.56 ± 8.96 points after the COVID-19 quarantine (p < 0.0001), while the caregivers’ stress increased by 1.39 ± 3.46 points between the two evaluations (p < 0.0001). The decline was more evident in people with milder dementia. Higher values of instrumental ADL at baseline were associated with a significant lower worsening in NPI and caregiver’s stress. Conclusions COVID-19 quarantine negatively affected functional, cognitive, and neuropsychiatric symptoms in older people affected by dementia/MCI, highlighting the impact of COVID-19 quarantine for this population.