We investigated the different mechanisms that may underlie deficits in verbal concept formation among patients with Alzheimer's disease (AD) and ischaemic vascular dementia (IVD) associated with periventricular and deep white matter alterations. Concept formation was assessed with the WAIS-R Similarities subtest (SIM). Two types of errors were re-coded from the 0-point responses as scored by the WAIS-R manual. In set errors (e.g., dog–lion “they're alive”) were coded when patients reported a very vague superordinate concept for the word pair. Out of set responses (e.g., dog–lion “the lion roars and the dog barks”) were coded when a response was clearly out of mental set, i.e., when participants were unable to provide a superordinate concept for the word pair. Between-group comparisons demonstrated no difference in SIM test performance according to the scoring system described in the WAIS-R manual. Nonetheless, AD patients produced a greater proportion of in set errors, while IVD patients produced a greater proportion of out of set errors. Out of set errors were highly associated with measures of executive function, while in set errors were associated with measures related to delayed recognition memory and semantic intrusion errors. We conclude that the underlying deficits that contribute to poor concept formation differ between AD and IVD patients. In IVD impaired concept formation is related to deficits in the executive systems necessary to monitor responses and sustain mental set. In AD, by contrast, the deficit appears to be secondary to impaired verbal response selection.