Psychosis occurs across a wide variety of dementias with differing etiologies, including Alzheimer’s dementia, Parkinson’s dementia, Lewy body dementia, frontotemporal dementia, and vascular dementia. Pimavanserin, a selective serotonin 5-HT 2A receptor (5-HT 2A R) inverse agonist, has shown promising results in clinical trials by reducing the frequency and/or severity of hallucinations and delusions and the risk of relapse of these symptoms in patients with dementia-related psychosis. A literature review was conducted to identify mechanisms that explain the role of 5-HT 2A Rs in both the etiology and treatment of dementia-related psychosis. This review revealed that most pathological changes commonly associated with neurodegenerative diseases cause one or more of the following events to occur: reduced synaptic contact of gamma aminobutyric acid (GABA)-ergic interneurons with glutamatergic pyramidal cells, reduced cortical innervation from subcortical structures, and altered 5-HT 2A R expression levels. Each of these events promotes increased pyramidal cell hyperexcitability and disruption of excitatory/inhibitory balance, facilitating emergence of psychotic behaviors. The brain regions affected by these pathological changes largely coincide with areas expressing high levels of 5-HT 2A Rs. At the cellular level, 5-HT 2A Rs are most highly expressed on cortical glutamatergic pyramidal cells, where they regulate pyramidal cell excitability. The common effects of different neurodegenerative diseases on pyramidal cell excitability together with the close anatomical and functional connection of 5-HT 2A Rs to pyramidal cell excitability may explain why suppressing 5-HT 2A R activity could be an effective strategy to treat dementia-related psychosis.