Objective Previous studies have indicated that dementia and depression have a considerable impact on the functional capacity of older adults, also influencing awareness about ability. The purpose of the current study was to investigate the impact of dementia, depression and awareness on activities of daily living (ADL) in a sample from a middle‐income country. Methods The current study explored impairments in basic, instrumental and advanced ADL using a factorial design comparing four groups: people with dementia and depression, people with dementia without depression, older adults with depression but no dementia and healthy older adults. For each type of ADL, self‐report and informant report was contrasted in order to investigate the issue of lack of awareness in relation to ADL. Results Results indicate that dementia is associated with impairments in all types of ADL. Advanced ADL were also reduced in depressed participants. In addition, in the case of instrumental and basic ADL, informant report indicated less preserved abilities than participant self‐report, particularly in people with dementia. Conclusions The findings highlight the importance of developing interventions and compensatory strategies to prevent loss of ADL in dementia, also suggesting that early intervention in older adults with depression should focus on advanced ADL to prevent social isolation and withdrawal. Finally, the findings indicate that self‐information about ADL may be compromised in dementia, so clinicians exploring disability should consider fully different aspects of ADL in this group. Copyright © 2017 John Wiley & Sons, Ltd.