This study examines the relationship between dementia and institutionalisation directly after hospital discharges in older people and explores potential mediators of the association. Our analyses are based on linked Scottish administrative health and social care data, including 79,983 hospital stays for 43,753 patients aged 65 or over. Our results show that dementia patients are more likely to be discharged to care institutions compared with non-dementia patients (odds ratio = 17). Further analyses reveal that this can be partially explained by the fact that dementia patients are more likely to have injury-related admissions and long hospital stays. This indirect effect accounts for around 6% of the total effect. We also investigate the effect of receiving home care, finding no evidence that it influences the likelihood of institutionalisation from hospitals in older people.