Objective Problems with everyday functioning are linked to reduced well‐being in people with dementia (PwD) and their carers. However, previous research has almost solely investigated the performance of everyday activities, and global functioning without analysing individual activities. This study explored how deficits in initiating and performing individual activities were associated with carer burden and poorer quality of life of carers and PwD. Methods Carers of people with mild dementia were recruited via 10 National Health Service Trusts, as well as through attending six carer support groups. Carers were asked to complete the revised Interview for Deteriorations in Daily Living Activities in Dementia 2 (R‐IDDD2), and measures on carer burden, well‐being, and person with dementia well‐being. Data were analysed using correlation analysis. Results Two hundred and seventy‐two carers completed the R‐IDDD2. Carers were grouped into those with low or high ratings of well‐being based on the mean scores. All but three activities on the initiative and/or performance scale were significantly associated with carer burden and carer and PwD quality of life. Engaging in hobbies and maintaining an active social life were most strongly associated with carer and PwD well‐being. Initiating computer use, driving, and medication management were not related to carer burden. Conclusions Findings from this study can have direct implications for improving care management early in the disease. Post‐diagnostic support needs to provide more opportunities for PwD, and their carers, to engage in social groups, whilst interventions targeted at living well with dementia need to particularly improve the initiative of engaging in individual hobbies. © 2017 The Authors. International Journal of Geriatric Psychiatry published by John Wiley & Sons Ltd.