Subcortical hyperintensities are easily visualized areas of signal abnormality that are seen on T2-weighted magnetic resonance imaging (MRI). Characteristically they occur in the white matter of the brain and are more common in elderly people. In depression, little is known of the clinical significance of subcortical hyperintensities or their contribution to the prognosis. Fifty-eight consecutive patients with DSM-III-R depression and an age range of 65 to 85 years were prospectively collected from an old-age psychiatry service. Response to treatment was assessed with a clinical global outcome measure. A neuropsychology battery was completed on all patients after treatment. Forty-four patients completed MRI scanning. The scans were scored using a regional rating system for hyperintensities. Forty-eight percent of patients had a favorable response to treatment on the clinical global outcome scale. Poor outcome was associated with female sex (p = .07), poor physical health (p = .040), diabetes (p = .018), psychosis (p = .026), and an early age at onset of first episode of depression (p = .036). Even after adjustment for confounding effects, there were significant neuropsychological associations with the regional hyperintensities. Distribution in the periventricular area correlated with delayed recall after distraction (p = .025), and punctate lesions in the basal ganglia correlated with impaired category production (p = .020). Pontine reticular formation hyperintensities were related to impaired psychomotor speed (p = .04). Location in the frontal deep-white matter (p = .024), basal ganglia (p = .03), and pontine reticular formation (p = .02) was associated with a poor acute response to treatment. However, the response to treatment was not related to total cerebral white-matter hyperintensity load. A logistic regression equation included all the significant prognostic features and found four independent predictors of poor outcome: More than five punctate lesions of the basal ganglia, diabetes, lower mean arterial pressure, and hyperintensity of the pontine reticular formation significantly predicted outcome. These four factors correctly predicted 95.6% of patients with a poor outcome and 85.7% with a favorable outcome. In late-life depression, subcortical hyperintensities are common. Lesions in the cerebral white matter are predominantly associated with memory disturbance, and those in deeper infratentorial areas, with psychomotor slowing and executive deficits. Total white-matter load has no prognostic value, and although some subcortical regions are associated with poor response, individually they have little specificity. However, a combination of involvement in three areas (basal ganglia, pons, and frontal lobe) is clinically relevant and predicts outcome with great accuracy (91%). Patients with lesions in the basal ganglia and deep white matter had an especially poor response to pharmacotherapy.