Delusions and hallucinations are common in Alzheimer disease (AD) and there are conflicting reports regarding their ability to predict cognitive decline, functional decline, and institutionalization. According to all previous literature, they are not associated with mortality. To examine whether the presence of delusions or hallucinations has predictive value for important outcomes in AD. A total of 456 patients with AD at early stages (mean Folstein Mini-Mental State Examination [MMSE] score of 21 of 30 at entry) were recruited and followed up semiannually for up to 14 years (mean, 4.5 years) in 5 university-based AD centers in the United States and Europe. Using the Columbia University Scale for Psychopathology in AD (administered every 6 months, for a total of 3266 visit-assessments, average of 7.2 per patient), the presence of delusions and hallucinations was extracted and examined as time-dependent predictors in Cox models. The models controlled for cohort effect, recruitment center, informant status, sex, age, education, a comorbidity index, baseline cognitive and baseline functional performance, behavioral symptoms, and use of neuroleptics and cholinesterase inhibitors. Cognitive (Columbia MMSE score of < or =20/57 [approximate Folstein MMSE score of < or =10/30]), functional (Blessed Dementia Rating Scale [parts I and II] score of > or =10), institutionalization equivalent index, and death. During the full course of follow-up, 38% of patients reached the cognitive, 41% the functional, 54% the institutionalization, and 49% the mortality end point. Delusions were noted for 34% of patients at baseline and 70% at any evaluation. Their presence was associated with increased risk for cognitive (risk ratio [RR], 1.50; 95% confidence interval [CI], 1.07-2.08) and functional decline (RR, 1.41; 95% CI, 1.02-1.94). Hallucinations were present in 7% of patients at initial visit and in 33% at any visit. Their presence was associated with increased risk for cognitive decline (RR, 1.62; 95% CI, 1.06-2.47), functional decline (RR, 2.25; 95% CI, 1.54-2.27), institutionalization (RR, 1.60; 95% CI, 1.13-2.28), and death (RR, 1.49; 95% CI, 1.03-2.14). Delusions and hallucinations are very common in AD and predict cognitive and functional decline. Presence of hallucinations is also associated with institutionalization and mortality.