Objectives The objectives of this study were to describe the use of psychotropic drugs among home‐dwelling people with mild dementia, to identify potentially inappropriate medications (PIM) and drug–drug interactions (DDI), and to analyze potential variables associated with having PIM and DDI. Methods Patients (n = 251) with a first‐time diagnosis of mild dementia (defined as a mini‐mental state examination score >20) were included from outpatient clinics. Prevalence of psychotropic drug use, polypharmacy, and psychotropic polypharmacy were investigated. The prevalence of PIM and DDI were defined using the Norwegian general practice criteria and an interactions database, respectively. Variables associated with having PIM and DDI were assessed using a multivariable logistic regression analysis adjusting for relevant demographic and clinical variables. Results Almost 96% of the patients used one or more medications. Polypharmacy was found in 45% of the patients, and nearly 70% of the patients were using one or more psychotropic drugs. Psychotropic polypharmacy was found in seven patients. PIM were identified in 35 patients (14%), while only four severe DDI were found. Female sex and number of medications were significantly associated with having PIM, whereas only number of medications was significantly associated with having DDI. Conclusion Few patients had PIM or severe DDI, indicating that the quality of prescribing was acceptable. However, psychotropic drug use was common in home‐dwelling people with mild dementia despite limited evidence of benefit in dementia. More knowledge is needed about the potential risks associated with psychotropic drug use and having PIM and DDI in people with mild dementia. Copyright © 2016 John Wiley & Sons, Ltd.