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Introduction 4.2 million individuals in the UK have type 2 diabetes, a known risk factor for dementia and mild cognitive impairment (MCI). Diabetes treatment may modify this association, but existing evidence is conflicting. We therefore aimed to assess the association between metformin therapy and risk of incident all-cause dementia or MCI compared with other oral glucose-lowering therapies (GLTs).Research design and methods We conducted an observational cohort study using the Clinical Practice Research Datalink among UK adults diagnosed with diabetes at ≥40 years between 1990 and 2019. We used an active comparator new user design to compare risks of dementia and MCI among individuals initially prescribed metformin versus an alternative oral GLT using Cox proportional hazards regression controlling for sociodemographic, lifestyle and clinical confounders. We assessed for interaction by age and sex. Sensitivity analyses included an as-treated analysis to mitigate potential exposure misclassification.Results We included 211 396 individuals (median age 63 years; 42.8% female), of whom 179 333 (84.8%) initiated on metformin therapy. Over median follow-up of 5.4 years, metformin use was associated with a lower risk of dementia (adjusted HR (aHR) 0.86 (95% CI 0.79 to 0.94)) and MCI (aHR 0.92 (95% CI 0.86 to 0.99)). Metformin users aged under 80 years had a lower dementia risk (aHR 0.77 (95% CI 0.68 to 0.85)), which was not observed for those aged ≥80 years (aHR 0.95 (95% CI 0.87 to 1.05)). There was no interaction with sex. The as-treated analysis showed a reduced effect size compared with the main analysis (aHR 0.90 (95% CI 0.83 to 0.98)).Conclusions Metformin use was associated with lower risks of incident dementia and MCI compared with alternative GLT among UK adults with diabetes. While our findings are consistent with a neuroprotective effect of metformin against dementia, further research is needed to reduce risks of confounding by indication and assess causality.