While recognizing the acknowledged difference in dementia prevalence between Indigenous and non-Indigenous populations, most previous studies were conducted in the Global North. This study aims to examine the relationship between Indigenous ethnic identity and dementia status with a special focus on urban-rural differences among older adults in Ecuador. Data came from Ecuador's Survey of Health, Welfare, and Aging (SABE), derived from a probability sample of households in Ecuador. The final sample comprised 4,984 adults aged 60 or older. Dementia status was assessed through three indicators: low scores on a cognitive assessment, the number of difficulties in instrumental activities of daily living (IADL), and self-reported dementia diagnosis. Logistic regression and multivariate decomposition analyses were utilized. Indigenous participants, even after adjusting for sociodemographic and health-related factors, exhibited a higher likelihood of having dementia compared to their non-Indigenous counterparts. Among Indigenous participants, those residing in rural areas had higher likelihood of having dementia status, while there was no significant urban-rural difference observed among non-Indigenous participants. Rural residency and covariates explain 91.0% of the observed difference in dementia prevalence between Indigenous and non-Indigenous older adults. Indigenous older adults who are living in rural areas are at particularly high risk of having dementia largely because they have presently recognized modifiable risk factors. These findings underscore the urgent need to prioritize provisions of appropriate and equitable service related to dementia for Indigenous People living in rural areas outside high-income countries.