Diabetes mellitus (DM) is a chronic metabolic disorder characterized by high blood glucose levels that can cause structural and functional changes in multiple tissues and organs in the body, leading to various complications and seriously affecting human health. Epidemiological findings suggest that diabetic patients are at a greater risk of dementia, including Alzheimer’s disease (AD). Recent studies have demonstrated that increased endogenous formaldehyde (FA) levels can be generated in severe diseases such as DM and AD. Endogenous FA can be produced via oxidative deamination of methylamine catalyzed by semicarbazide-sensitive amine oxidase (SSAO) and is ubiquitous in fluids, tissues, and cells of the body. Meanwhile, SSAO activity has been clinically confirmed to be increased in DM and AD, and SSAO is predominantly located in the vascular smooth muscles, retina, kidney, and cartilage tissues. FA, as a cross-linking agent, is capable of causing high cytotoxicity toward endothelial cells. Moreover, FA plays a crucial role in exacerbating oxidative stress and advanced glycation. Thus, FA is a chronic risk factor for angiopathy, which is the leading cause of nephropathy, retinopathy, and encephalopathy (cognitive impairment) in DM. In this review, we briefly summarize the research progress of FA in diabetes and its related complications and further discuss the role of FA in cognitive impairment from DM to AD.