Objective To examine the association between the risks of depression and vascular dementia (VaD) based on Taiwan's National Health Insurance Research Database. Methods This retrospective longitudinal matched‐cohort study used National Health Insurance Research Database data from 49,955 participants (9,991 with new onset depression, 39,964 controls). A Cox regression analysis was performed on the whole sample and the subgroup of patients with depression. We further excluded patients who developed VaD within 3 or 5 years after enrollment to evaluate depression as an independent risk factor for or a prodrome of VaD. Results During the 10‐year follow‐up period, the incidence rate ratio of VaD between patients with depression and controls was 4.24 [95% confidence interval (CI) 2.90–6.21, P < 0.001]. After adjustment for covariates, the hazard ratio (HR) of VaD in patients with depression was 3.10 (95% CI 2.13–4.52, P < 0.001). In the whole sample, risk factors for VaD besides depression were aged ≥60 years (HR = 20.08), hypertension (HR = 1.70), diabetes (HR = 1.61), coronary artery disease (HR = 2.26), head injury (HR = 2.20), and cerebrovascular disease (HR = 3.02). In patients with depression, aged ≥60 years (HR = 32.16), coronary artery disease (HR = 2.82), head injury (HR = 2.06), and cerebrovascular disease (HR = 2.37) remained risk factors for VaD. After excluding those who developed VaD within 3 or 5 years, HRs remained high (3.28, 95% CI 2.03–5.31, P < 0.001; 2.12, 95% CI 1.05–4.25, P = 0.035, respectively). Conclusions Our findings suggest that depression is an independent risk factor for subsequent VaD. Older age, cerebrovascular disease, head injury, and coronary artery disease might increase the risk of VaD among patients with depression.