Interventions with Clinic Clowns trained for performing in nursing homes have been explored in several field studies. Until now, however, it has not been sufficiently investigated to which extent and in which ways elderly with dementia (EWD) respond to and engage in humorous interactions. An exploratory study with 17 German dementia care unit residents aimed at narrowing this gap. To assess understanding, appreciation and authorship as well as contextual information we have constructed a behavioral observation and annotation system for humor interaction with the elderly with dementia (ANHIDE) The system was tested for inter-coder agreement and reached kappa values qualified as substantial for humor categories (κ = .685), humor response (κ = .725) and musical contributions (κ = .752). In 9 hours of video recorded interaction, participants contributed almost a third of the annotated humor events with verbal humor being their most frequent way of expression. Benign humor styles prevailed (85%) and aggressive humor was rare (2%). Whenever participants could be addressed successfully, they responded overly positive (89%). Malign humor styles wereif not ignoredanswered with disapproval or the attempt to reconcile. Best practice recommendations for addressing and involving the residents with dementia are well-structured contributions and combined use of various stylistic means. Limitations, as well as suggestions for further in-depth research, are discussed, e.g., individual differences in humor response, strategies to encourage participants' active contribution or fostering humor as a behavioral competence. Overall, this contribution is the first to provide a behavioral observation system for a detailed annotation of humor interactions regarding the elderly with dementia (ANHIDE). We demonstrate preliminary evidence for competencies in humor perception and production in the target group.