Background Cerebrovascular changes and glucocorticoid mediated hippocampal atrophy are considered relevant for depression-related cognitive deficits, forming putative treatment targets. Aims This study examined the relative contribution of cortisol levels, brain atrophy and white matter hyperintensities to the persistence of cognitive deficits in older adults with depression. Method Thirty-five people aged >= 60 years with DSM-IV major depression and twenty-nine healthy comparison controls underwent magnetic resonance imaging (MRI) and were followed up for 18 months. We analysed the relationship between baseline salivary cortisol levels, whole brain, frontal lobe and hippocampal volumes, severity of white matter hyperintensities and follow-up cognitive function in both groups by testing the interaction between the groups and these biological measures on tests of memory, executive functions and processing speed in linear regression models. Results Group differences in memory and executive function follow-up scores were associated with ratings of white matter hyperintensities, especially of the deep white matter and periventricular regions. Compared with healthy controls, participants with depression scoring within the third tertile of white matter hyperintensities dropped two and three standard deviations in executive function and memory scores respectively. No biological measure related to group differences in processing speed, and there were no significant interactions between group and cortisol levels, or volumetric MRI measures. Conclusions White matter hyperintensities, rather than cortisol levels or brain atrophy, are associated with continuing cognitive impairments in older adults with depression. The findings suggest that cerebrovascular disease rather than glucocorticoid-mediated brain damage are responsible for the persistence of cognitive deficits associated with depression in older age.