OBJECTIVE: People with type 2 diabetes are at increased risk of cognitive impairment but the mechanism is uncertain. Elevated glucocorticoid levels in rodents and humans are associated with cognitive impairment. We aimed to determine whether fasting cortisol levels are associated with cognitive ability and estimated lifetime cognitive change in an elderly population with type 2 diabetes. RESEARCH DESIGN AND METHODS: This was a cross-sectional study of 1,066 men and women aged 60-75 years with type 2 diabetes, living in Lothian, Scotland (the Edinburgh Type 2 Diabetes Study). Cognitive abilities in memory, nonverbal reasoning, information processing speed, executive function, and mental flexibility were tested, and a general cognitive ability factor, g, was derived. Prior intelligence was estimated from vocabulary testing, and adjustment for scores on this test was used to estimate lifetime cognitive change. Relationships between fasting morning plasma cortisol levels and cognitive ability and estimated cognitive change were tested. Models were adjusted for potential confounding and/or mediating variables including metabolic and cardiovascular variables. RESULTS: In age-adjusted analyses, higher fasting cortisol levels were not associated with current g or with performance in individual cognitive domains. However, higher fasting cortisol levels were associated with greater estimated cognitive decline in g and in tests of working memory and processing speed, independent of mood, education, metabolic variables, and cardiovascular disease (P <0.05). CONCLUSIONS: High morning cortisol levels in elderly people with type 2 diabetes are associated with estimated age-related cognitive change. Strategies targeted at lowering cortisol action may be useful in ameliorating cognitive decline in individuals with type 2 diabetes.