BACKGROUND Dementia is associated with progressive deterioration in multiple cognitive domains, functional impairment and neuropsychiatric symptoms (NPS). OBJECTIVE The aim of this study was to explore the factors associated with the outcome of NPS and daily functioning in patients with dementia during acute psychogeriatric hospitalization. METHODS The data (n = 175) were collected between 2009 and 2013 in naturalistic settings on one acute psychogeriatric ward at one university hospital in Finland. Behavioural symptoms were assessed using the Neuropsychiatric Inventory (NPI) and activities of daily living using the Alzheimer's Disease Cooperative Study-Activities of Daily Living (ADCS-ADL). RESULTS During the hospital stay (45 days ±30.4) NPI total score decreased from 33.9 to 18.2 (p < .001). Daily functioning score decreased from 31.7 to 20.9 (p < .001). The number of patients taking antipsychotics (96-130, p = .004) and anxiolytics (54-102, p < .001) increased from admission to discharge. Overall mean dosage (mg/day) of antipsychotics (from 40.2 to 72.0 in chlorpromazine equivalents, p < .00) and anxiolytics (from 3.43 to 7.47 in diazepam equivalents, p < .001) also increased. Higher antipsychotic dosage at discharge was a significant predictor for large NPI score change (p = .002) indicating better symptom reduction. Neither higher antipsychotic dosage or anxiolytic dosage at discharge were significant predictors for ADL score change. CONCLUSIONS Neuropsychiatric symptoms improved while deterioration was found in daily functioning from admission to discharge. Higher antipsychotic dosage at discharge was a predictor for larger NPI score change indicating better symptom reduction. Preventing threatening ADL decline during hospital stay is especially important.