Estrogen replacement therapy (ERT) is increasingly recommended for postmenopausal women due to its numerous beneficial effects on bone, cardiovascular system, brain function and quality of life. Data from retrospective epidemiological studies have shown that ERT has a potential to reduce the risk for developing Alzheimer's disease (AD) and to delay its progression. In addition, recent clinical studies have reported improvement of cognitive functions in women with AD. Findings from basic science indicated that the possible mechanisms of action by which estrogen may affect AD include interaction with cholinergic neurotransmitter system, cholinergic neurotrophic and neuroprotective effect, improvement of learning and memory, improvement of cerebral blood flow and metabolism, antioxidant and antiinflammatory action, and interference with beta-amyloid protein metabolism and toxicity. Estrogen use in postmenopausal women may offer a new approach for improving cognitive functions in nondemented and demented women, delaying the onset and progression of AD and reducing its occurrence. However, prospective clinical trials are required to establish the efficacy of ERT for prevention and treatment of AD.