About one third of hip-fractured patients have dementia and thus may have difficulties adhering to postoperative instructions. Hip replacement is the most common treatment when a femoral neck fracture is displaced in healthy older people, whereas for those with dementia and other severe comorbidities, internal fixation (IF) is generally recommended. To evaluate complications, functional outcome, and mortality for both surgical methods, IF and hemiarthroplasty (HAP), in older patients suffering from femoral neck fracture with or without dementia. One hundred eighty patients, aged 70 years or older, who were operated on using IF (n = 69) in undisplaced femoral neck fracture and HAP (n = 111) if the fractures were displaced. Mental state was assessed using the Mini-Mental State Examination and Organic Brain Syndrome scale, and dementia and delirium were diagnosed according to the Diagnostic and Statistical Manual of Mental Disorders (Fourth Edition) criteria. Outcomes of mortality, complications, functional ability, and quality of life were measured. There was no difference in complications or mortality at 4 months and 1 year for the IF or HAP groups. Patients with and without dementia, operated on with HAP, had a better functional outcome after 1 year than those operated on with IF. The result of this study indicates that dementia per se is not a reason for disqualifying those patients from the most appropriate surgical method.