To explore to which extent neurodegeneration and cerebral small vessel disease (SVD) could mediate the association between type-2 diabetes and higher dementia risk. The analytical sample consisted in 2228 participants, out of the Three-City study, aged 65 and older, free of dementia at baseline who underwent brain MRI. Diabetes was defined by medication intake or fasting or non-fasting elevated glucose levels. Dementia status was assessed every 2 to 3 years, during up to 12 years of follow-up. Brain parenchymal fraction (BPF) and white matter hyperintensities volume (WMHV) were selected as markers of neurodegeneration and cerebral SVD respectively. We performed a mediation analysis of the effect of baseline BPF and WMHV (mediators) on the association between diabetes and dementia risk using linear and Cox models adjusted for age, sex, education level, hypertension, hypercholesterolemia, BMI, smoking and alcohol drinking status, APOE-ε4 status, and study site. At baseline, 8.8% of the participants had diabetes. Diabetes (yes vs. no) was associated with higher WMHV (β(diab) = 0.193, 95% CI 0.040; 0.346) and lower BPF (β(diab )= -0.342, 95% CI -0.474; -0.210), as well as with an increased risk of dementia over 12 years of follow-up (HR(diab )= 1.65, 95% CI 1.04; 2.60). The association between diabetes status and dementia risk was statistically mediated by higher WMHV (HRdiab=1.05, 95% CI 1.01; 1.11, mediated part = 10.8%) and lower BPF (HR(diab )= 1.12, 95% CI 1.05; 1.20, mediated part = 22.9%). This study showed that both neurodegeneration and cerebral SVD statistically explained almost 30% of the association between diabetes and dementia.