Objectives We investigated depression, cognitive reserve, and their interaction as risk factors for incident dementia among community-dwelling older adults. Methods In total, 2099 participants, aged ≥65 years with no dementia during baseline assessment, who completed the follow-up two years later were included from the Cognitive Function and Ageing Study Wales. Baseline depression and dementia and dementia at follow-up were evaluated using the Geriatric Mental State Examination and the Automated Geriatric Examination for Computer Assisted Taxonomy. Cognitive reserve was measured by combining overall education, mid-life occupational complexity, and later-life social and cognitive activities. Risk of dementia in relation to depression and cognitive reserve was estimated using penalized maximum likelihood logistic regression. Interactions between cognitive reserve and depression were assessed using both multiplicative and additive scales. Results Baseline depression and low cognitive reserve significantly increased the risk of subsequent dementia at follow-up. No multiplicative interaction between cognitive reserve and depression existed. We observed an additive interaction between case-level depression and cognitive reserve. A significant association between depression and dementia was only found among people with low cognitive-reserve levels. Conclusions Greater cognitive reserve attenuated the depression-associated risk of developing dementia. This suggests the need to emphasize prodromal dementia detection among older adults with lower cognitive reserve and depression.