Dementia is one of the most debilitating symptoms of Parkinson's disease. A recent longitudinal study suggests that up to 80% of patients with Parkinson's disease will eventually develop dementia. Despite its clinical importance, the development of dementia is still difficult to predict at early stages. We previously identified olfactory dysfunction as one of the most important indicators of cortical hypometabolism in Parkinson's disease. In this study, we investigated the possible associations between olfactory dysfunction and the risk of developing dementia within a 3-year observation period. Forty-four patients with Parkinson's disease without dementia underwent the odour stick identification test for Japanese, memory and visuoperceptual assessments, (18)F-fluorodeoxyglucose positron emission tomography scans and magnetic resonance imaging scans at baseline and 3 years later. A subgroup of patients with Parkinson's disease who exhibited severe hyposmia at baseline showed more pronounced cognitive decline at the follow-up survey. By the end of the study, 10 of 44 patients with Parkinson's disease had developed dementia, all of whom had severe hyposmia at baseline. The multivariate logistic analysis identified severe hyposmia and visuoperceptual impairment as independent risk factors for subsequent dementia within 3 years. The patients with severe hyposmia had an 18.7-fold increase in their risk of dementia for each 1 SD (2.8) decrease in the score of odour stick identification test for Japanese. We also found an association between severe hyposmia and a characteristic distribution of cerebral metabolic decline, which was identical to that of dementia associated with Parkinson's disease. Furthermore, volumetric magnetic resonance imaging analyses demonstrated close relationships between olfactory dysfunction and the atrophy of focal brain structures, including the amygdala and other limbic structures. Together, our findings suggest that brain regions related to olfactory function are closely associated with cognitive decline and that severe hyposmia is a prominent clinical feature that predicts the subsequent development of Parkinson's disease dementia.