Using continuous time sampling and direct observation methodology, this study examined the impact of social interaction in music listening on behavioural responses of people with moderate-to-severe dementia (n = 24). Using Kitwood's theory of personhood as a framework, it was hypothesized that levels of well-being and engagement would be greatest during a live music condition compared with recorded and no music conditions and that levels of challenging behaviour would decrease most in the live music conditions compared with the other music conditions. The relationship between severity of cognitive impairment and well-being, engagement and challenging behaviours across conditions was also examined. The findings suggest that live music was significantly more effective in increasing levels of engagement and well-being regardless of level of cognitive impairment. No significant differences across conditions were found for challenging behaviours, but the correlation between these and cognitive impairment revealed mixed results. Clinical implications regarding the use of live music in dementia care settings are highlighted and recommendations for future research of interventions aimed at reducing challenging behaviours are discussed.