BACKGROUND: Evaluating physical performance could facilitate dementia risk assessment. However, findings differ regarding which type of physical performance best predicts dementia. OBJECTIVE: The objective of this study was to examine the association between physical performance and incidence of dementia in Japanese community-dwelling older adults. DESIGN: This was a prospective study of community-dwelling older adults. METHODS: Of 14,313 invited individuals who were ≥ 65 years old, 5104 agreed to participate from 2011 to 2012, and 4086 (52% women; mean age = 72.0 years) met the criteria. Baseline assessments of the following physical performance indicators were obtained: grip strength, the Five-Times Sit-to-Stand Test, and the Timed "Up & Go" Test. The physical performance level in each test was categorized as C1 (highest), C2 (middle-high), C3 (middle-low), or C4 (lowest) on the basis of sex-stratified quartile values. Incident dementia status was obtained from medical records that were updated monthly. RESULTS: During follow-up (mean duration = 42.9 months), there were 243 incident cases of dementia (5.9%). Log-rank test results indicated that a lower physical performance level constituted a significant risk factor for dementia. After adjustment for covariates, Cox proportional hazards models (reference: highest physical performance level [C1]) demonstrated that the Five-Times Sit-to-Stand Test in the group with the lowest physical performance level (hazard ratio = 1.69; 95% CI = 1.10-2.59) was significantly associated with a risk of dementia. Likewise, the Timed "Up & Go" Test in the group with the lowest physical performance level (hazard ratio = 1.54; 95% CI = 1.01-2.35) was significantly associated with a risk of dementia. However, grip strength was not significantly associated with a risk of dementia. LIMITATIONS: This study was limited by the use of medical record data. CONCLUSIONS: A lower mobility-related physical performance level was associated with dementia risk. Dementia risk assessment should include an adequate evaluation of physical function.