The forecast, prepared for the Alzheimer's Australia lobby group by consulting firm Access Economics, warned 2010 would signal the beginning of the trend, with the first of the "baby boomer" generation reaching retirement age.
Neurodegenerative conditions such as dementia would overtake heart disease and cancer as the most pressing issue for Australia's health system, the report said, with both their prevalence and severity set to increase.
"The rising prevalence of dementia will have dire consequences for our health care system and our quality of life," it said.
"The baby boomer bulge in Australia's demographic profile means that the coming decade will see an acceleration of the impacts of ageing on dementia prevalence greater than previously seen in Australia's history," it added.
The number of people with dementia was predicted to rise to 1.13 million by 2050 from 245,400 in 2009.
Dementia was already the leading single cause of disability in Australians and by 2023 would cost the health system more than heart disease.
"By the 2060s, spending on dementia is set to outstrip that of any other health condition," the report said.
"It will represent around 11 percent of the entire health and residential aged care sector spending," it added.