The Direct Assessment of Functional Abilities (DAFA) was designed as a direct measure of instrumental activities of daily living (IADLs) that could be compared with an indirect assessment of IADLs by the Pfeffer Functional Activities Questionnaire (PFAQ). The DAFA (28 demented and 15 control subjects) and PFAQ (subjects and informants) were administered twice, together with a brief cognitive battery. Demented subjects performed significantly worse on direct assessment (DAFA) than predicted by self-report (PFAQ), and overestimation of abilities increased with severity of dementia. In contrast, informants tended to underestimate abilities of demented subjects, but not to a significant degree. Control (nondemented) subjects had comparable results with the two methods. The DAFA may provide a more objective measure of functional status in demented subjects than do indirect methods of assessment.