Emerging research confirms the need for technologically enhanced solutions to support non-pharmacological interventions which can improve the quality of life, the mental and physical health of demented people. Several types of research examined if virtual reality can be an effective solution. This paper aims to present the cyclic process of prototyping, testing, analysing, and refining the VR system in real-world clinical settings. Seven people with moderate to severe dementia were recruited. The experiment required the patients to attend three virtual reality iterations of rapid prototyping with user testing. All three iterations involved training activities with upper body movements similar to their usual physical training. A mixed-methods design measured affect and emotional behaviour using the Observed Emotion Rating Scale and the Visual Analog Scale. Content analysis was conducted following observations and interviews. During each iteration of rapid prototyping with user testing, quantitative measurements of performance, independence and time were recorded. Eye tracking and movement information were captured by the system. Finally, a simplified version of the presence and usability scales evaluated the system. The results of this study provide further evidence that virtual reality can play a significant role in the improvement of people’s with dementia physical training and emotional health when is appropriately designed. The results present the vital factors which should be incorporated in a virtual reality system which are: 1) a simple interactions modality; 2) visible visual targets and continuous feedback; 3) personalized virtual environments; 4) personalized range of movements.