Objective: To determine the effectiveness of community based occupational therapy on daily functioning of patients with dementia and the sense of competence of their care givers. Design: Single blind randomised controlled trial. Assessors were blinded for treatment allocation. Setting: Memory clinic and day clinic of a geriatrics department and participants' homes. Participants: 135 patients aged ≥65 with-mild to moderate dementia living in the community and their primary care givers. Interventions: 10 sessions of occupational therapy over five weeks, including cognitive and behavioural interventions, to train patients in the use of aids to compensate for cognitive decline and care givers in coping behaviours and supervision. Main outcome measures: Patients' daily functioning assessed with the assessment of motor and process skills (AMPS) and interview of deterioration in daily activities in dementia (IDDD). Care giver burden assessed with the sense of competence questionnaire (SCQ). Participants were evaluated at baseline, six weeks, and three months. Results: Scores improved significantly relative to baseline in patients and care givers in the intervention group compared with the controls (differences were 1.5 (95% confidence interval 1.3 to 1.7) for the process scale; -11.7 (-13.6 to -9.7) for the performance scale; and (11.0; 9.2 to 12.8) for the competence scale). This improvement was still significant at three months. The number needed to treat to reach a clinically relevant improvement in motor and process skills score was 1.3 (1.2 to 1.4) at six weeks. Effect sixes were 2.5, 2.3, and 1.2, respectively, at six weeks and 2.7, 2.4, and 0.8, respectively, at 12 weeks. Conclusions: Occupational therapy improved patients' daily functioning and reduced the burden on the care giver, despite the patients' limited learning ability. Effects were still present at 12 weeks, which justifies implementation of this intervention.