Patients with type 2 diabetes can have several neuropathologies, such as memory deficits. Recent studies have focused on the association between metabolic imbalance and neuropathological problems, and the associated molecular pathology. Diabetes triggers neuroinflammation, impaired synaptic plasticity, mitochondrial dysfunction, and insulin resistance in the brain. Glucose is a main energy substrate for neurons, but under certain conditions, such as fasting and starvation, ketone bodies can be used as an energy fuel for these cells. Recent evidence has shed new light on the role of ketone bodies in regulating several anti-inflammation cellular pathways and improving glucose metabolism, insulin action, and synaptic plasticity, thereby being neuroprotective. However, very high amount of ketone bodies can be toxic for the brain, such as in ketoacidosis, a dangerous complication that may occur in type 1 diabetes mellitus or alcoholism. Recent findings regarding the relationship between ketone bodies and neuropathogenesis in dementia are reviewed in this article. They suggest that the adequately low amount of ketone bodies can be a potential energy source for the treatment of diabetes-induced dementia neuropathology, considering the multifaceted effects of the ketone bodies in the central nervous system. This review can provide useful information for establishing the therapeutic guidelines of a ketogenic diet for diabetes-induced dementia.