OBJECTIVE Presence of the apolipoprotein E (APOE) ε4 allele is a risk factor for dementia, whereas the ε2 allele offers protection against dementia. There is also evidence for a relationship between APOE genotype and changes in cognitive function. It is not clear, however, whether this relationship stems from undetected disease in persons genetically more vulnerable to dementia. This study examined whether APOE genotype was associated with either initial performance or change in performance on a range of cognitive and noncognitive tasks, after accounting for possible preclinical dementia. METHODS A population-based cohort was assessed up to four times over 12 years. METHODS The sample was an Australian cohort of 590 participants age 70 years and older who were genotyped for APOE. METHODS The outcomes were processing speed, verbal fluency, episodic memory, word recognition, face recognition, grip strength, and reaction time. RESULTS Adjusted latent growth models indicated that ε4 carriers had significantly poorer initial memory performance and greater declines in processing speed and word recognition than ε2 and ε3 carriers. In addition, ε2 carriers exhibited significantly less decline in right grip strength than ε3 carriers. However, after excluding 125 participants with low global cognition scores, all genotype effects became nonsignificant. CONCLUSIONS Over a 12-year period, findings indicate that APOE ε4-related cognitive decline in older community-dwelling populations is due to a higher likelihood of preclinical dementia among ε4 carriers. When possible dementia cases are removed from the analyses, ε4 associations with cognitive decline become statistically unreliable.