The study by Deakin's School of Psychology found that 16.9 per cent of residents in low-level care facilities who were mildly or moderately cognitively impaired suffered clinical depression.
But less than half of these cases had been detected or treated.
"This means that many people are leading a fairly miserable existence within the nursing home system," Deakin Professor of Psychology Marita McCabe said.
"If they have undiagnosed depression they are more likely to withdraw and are more likely to experience physical symptoms such as disrupted sleep and appetite."
Professor McCabe said there was a general view that anyone who was in a nursing home would be depressed.
"There is a myth that depression is a normal part of ageing, but it isn't," she said.
"Just because a person is getting older and they are in a nursing home, doesn't mean they are going to be depressed."
As a result of the study findings, Deakin has developed and implemented a training program for staff at a number of Melbourne nursing homes.
"It is aimed at helping staff better recognise symptoms of depression and provides strategies they can undertake if they do recognise it," Professor McCabe said.