Being unable to pick out common odours is a red flag for the risk of suffering the devastating condition.
The breakthrough means dementia could soon be predicted accurately with a simple smell test five years before symptoms develop.
The new “early warning sign” could mean earlier treatment and encourage lifestyle changes such as a better diet and more exercise before the condition takes hold.
There are 850,000 people living with the brain disease in Britain – a figure set to soar to one million by 2025 and two million by 2050. It costs the economy £26.3billion a year.
The study of almost 3,000 older people found that those who could not identify at least four out of five common smells were more than twice as likely to develop the disease.
The volunteers, aged 57 to 85, took part in tests five years ago to identify five unnamed smells.
In order of increasing difficulty they were peppermint, fish, orange, rose and leather.
Nearly eight out of 10 people tested were normal, identifying at least four scents.
Fourteen per cent could name only three, five per cent two, two per cent one and one per cent none.
Five years on nearly all who could not name a single scent had dementia.
Nearly 80 per cent who gave one or two correct answers also had it.
Report author Professor Jayant Pinto, of the University of Chicago, said: “These results show that smell is closely connected with brain function and health. We think smell ability may be an important early sign, marking people at greater risk. More work would need to be done but it could help find people at risk.”
Dr James Pickett, of the Alzheimer’s Society, said: “This adds to growing evidence that suggests sense of smell could be impacted in the early stages of dementia.”
He said smell tests were less invasive than other procedures such as examining spinal fluid.
Rosa Sancho, of Alzheimer’s Research UK, said: “Smell tests would need to be used alongside more specific diagnostic tests to aid early detection of dementia.”
The study is published in the journal of the American Geriatrics Society.