OBJECTIVES Although racial disparities in the prevalence and associated costs of Alzheimer's disease and related dementias (ADRD) have been documented in the elderly, no data examine whether these differences translate into differences in drug treatment. The objective of this study was to investigate racial disparities in the drug therapy for ADRD and its usual manifestations, depression and psychiatric disorders. METHODS Community-dwelling elderly Medicare beneficiaries with ADRD were identified from the 2000-2004 Medicare Current Beneficiary Survey Cost and Use files linked with Medicare claims (n=2,865). Generalized estimating equations were employed to calculate prevalence ratios (PRs) for use of anti-dementia medications, anti-depressants, and anti-psychotics by race, controlling for demographic characteristics, functional status, prescription drug insurance, and comorbidities. RESULTS The prevalence of ADRD was significantly higher in minority beneficiaries than in non-minority beneficiaries (8.1% vs. 5.7%, p<0.001), whereas anti-dementia medication use was 28% lower among minorities (PR=0.72, 95% confidence interval [CI] = 0.58, 0.88). Depression was common in both groups (68.4% in minorities vs. 70.8% in non-minorities, p=0.332), but minority beneficiaries were 40% less likely to receive anti-depressant therapy (PR=0.60, 95% CI = 0.42, 0.85). No racial differences were observed in prevalence of psychiatric disorders (17.6% vs. 20.8%, p=0.096) or anti-psychotic drug use (PR=1.06, 95% CI=0.78, 1.44). CONCLUSIONS Although minority Medicare beneficiaries were more likely to suffer from ADRD, they were significantly less likely to receive drug therapy for the condition and the coexisting depression. Under-use of appropriate drug therapy may lead to expensive inpatient hospitalization and nursing home care, resulting in poorer heath outcomes and substantial burden on the health care system. The identification of clinically-modifiable factors associated with undertreatment is critical to improve health outcomes and reduce cost.