BACKGROUND: Dementia is a leading cause of disability for adults over 65. Exercise intervention slows functional decline and improves balance, however the efficacy of physical therapy (PT) services for persons with dementia is unknown. The purpose of this study is to assess the effect of home health PT services on physical function for Medicare beneficiaries with a primary diagnosis of dementia. DESIGN: Observational cohort study using a combined Medicare data set of home health beneficiaries; we performed augmented inverse probability weighted regression with demographic, comorbidity, and symptom level characteristics analyzed as covariates. SETTING: Home health care, United States, 2012 PARTICIPANTS: Medicare beneficiaries who had a primary diagnosis of dementia and home health function evaluations at discharge, n = 1477. INTERVENTION: Physical therapy treatment, examined by 1) any PT and 2) PT visit number. MEASUREMENT: improvement in composite activities of daily living (ADL) scores from home health admit to discharge. RESULTS: Any PT increased the probability of improvement in ADLs by 15.2% (p < 0.001). Compared to 1–5 PT visits, 6–13 visits increased the probability of ADL improvement by 11.6% (p < 0.001). CONCLUSION: PT intervention is beneficial for ADL function improvement in Medicare home health beneficiaries with a primary diagnosis of dementia.