The aim of this study is to validate whether measuring the cerebral vasomotor response with the breath-holding method can be a useful technique in the differentiation of vascular and Alzheimer types of dementia. We adopted the clinical and neuropsychological diagnosis of dementia according to DSM-IV criteria as the standard diagnosis against which our method was compared. Resting middle cerebral artery velocity, its rate of increase on breath holding and its decrease on hyperventilation (full range of vasodilation, FRV) were measured using a transcranial Doppler (TCD) velocimeter on both sides in a prospective study on 32 age-matched controls, 36 patients diagnosed with Alzheimer type dementia, and 31 vascular dementia (VD) patients. A total of 186 vessels were studied in 99 patients. A high level of significance (p < 0.001) was noted in the FRV in the differentiation between the VD group and the other two groups, on both sides and in both sexes. By taking a statistically optimal cutoff point of 70%, the sensitivity and specificity of the FRV test for the diagnosis of VD are 84.5 and 93.0% respectively. Measurements of hemodynamic reserve using the cerebral perfusion reserve test assessed by TCD could provide a way to detect demented individuals with underlying vascular mechanism of dementia, but would not offer prognostic data or differentiate between varying degrees of dementia.