Research on interpersonal interaction dynamics in relationships between persons with dementia and their family caregivers has been limited. We examine the role of these dynamics in decisions to transition a family member from home care to congregate care, with a particular focus on the role of fear of incompetence. Fear of incompetence is the fear of being unable to interact, communicate in a meaningful way, or take care of a close family member with dementia. In this study ( N = 350 family caregivers), perceived negative changes in the family member with dementia predicted increased perceived dependency, which predicted both increased caregiver burden and greater Fear of incompetence in caregiver, which, in turn, predicted stronger care transition desire. Strategies should be aimed not only at reducing dependency of the care recipient but also teaching family caregivers interaction skills that decrease their fear of interactional incompetence and thus promote home care continuation.