Dementia is reported to be common in those with type 2 diabetes mellitus. Type 2 diabetes contributes to common molecular mechanisms and an underlying pathology with dementia. Brain cells becoming resistant to insulin leads to elevated blood glucose levels, impaired synaptic plasticity, microglial overactivation, mitochondrial dysfunction, neuronal apoptosis, nutrient deprivation, TAU (Tubulin-Associated Unit) phosphorylation, and cholinergic dysfunction. If insulin has neuroprotective properties, insulin resistance may interfere with those properties. Risk factors have a significant impact on the development of diseases, such as diabetes, obesity, stroke, and other conditions. Analysis of risk factors of importance for the association between diabetes and dementia is important because they may impede clinical management and early diagnosis. We discuss the pathological and physiological mechanisms behind the association between Type 2 diabetes mellitus and dementia, such as insulin resistance, insulin signaling, and sporadic forms of dementia; the relationship between insulin receptor activation and TAU phosphorylation; dementia and mRNA expression and downregulation of related receptors; neural modulation due to insulin secretion and glucose homeostasis; and neuronal apoptosis due to insulin resistance and Type 2 diabetes mellitus. Addressing these factors will offer clinical outcome-based insights into the mechanisms and connection between patients with type 2 diabetes and cognitive impairment. Furthermore, we will explore the role of brain insulin resistance and evidence for anti-diabetic drugs in the prevention of dementia risk in type 2 diabetes.