Background The association of the use of sodium-glucose cotransporter 2 (SGLT2) inhibitor and incident dementia remains unclear. This study aimed to evaluate the risk of incident dementia with the use of SGLT2 inhibitor. Methods This is a population-based cohort study utilizing Taiwan’s National Health Insurance Research Database. Each patient who took SGLT2 inhibitors was assigned to the SGLT2 inhibitor group, whereas 1:1 propensity score-matched randomly selected patients who were nonusers of SGLT2 inhibitors were assigned to the non-SGLT2 inhibitor group. The study outcome was incident dementia. Results A total of 976,972 patients newly diagnosed with type 2 diabetes mellitus (DM) between 2011 and 2018 were included in this study. After the patients’ propensity score matching by age, sex, duration of DM, comorbidities and drug index date of the patients, a total of 103,247 patients in the SGLT2 inhibitor group and 103,247 in the non-SGLT2 inhibitor group were enrolled for analysis. The SGLT2 inhibitor group was associated with a lower risk of incident dementia (adjusted hazard ratio: 0.89, 95% confidence interval: 0.82–0.96; p = .0021). Diabetic complications were significantly lower in the SGLT2 inhibitor group compared with the non-SGLT2 group. Sensitivity analysis was also consistent with the main analysis. Conclusions Patients with type 2 DM who were prescribed SGLT2 inhibitors were associated with a lower risk of incident dementia compared with those not prescribed SGLT2 inhibitors in real-world practice.