Objective To examine the relationship between Medicaid home‐ and community‐based services (HCBS) generosity and the likelihood of nursing home (NH) admission for dually enrolled older adults with Alzheimer's disease and related dementias (ADRD) and their level of physical and cognitive impairment at NH admission. Data Sources National Medicare data, Medicaid Analytic eXtract, and MDS 3.0 for CY2010‐2013 were linked. Study Design Eligible Medicare–Medicaid dual beneficiaries with ADRD were identified and followed for up to a year. We constructed two measures of HCBS generosity, breadth and intensity, at the county level for older duals with ADRD. Three binary outcomes were defined as follows: any NH placement during the follow‐up year for all individuals in the sample, high (vs. not high) physical impairment, and high (vs. not high) cognitive impairment at the time of NH admission for those who were admitted to an NH. Logistic regressions with state‐fixed effects and county random effects were estimated for these outcomes, respectively, accounting for individual‐ and county‐level covariates. Data Extraction Methods The study sample included 365,310 community‐dwelling older dual beneficiaries with ADRD who were enrolled in fee‐for‐service Medicare and Medicaid between October 1, 2010, and December 31, 2012. Principal Findings Considerable variations of breadth and intensity in county‐level HCBS were observed. We found that a 10‐percentage‐point increase in HCBS breadth was associated with a 1.4 (p < 0.01)‐percentage‐point reduction in the likelihood of NH admission. Among individuals with NH admission, greater HCBS breadth was associated with a higher level of physical impairment, and greater HCBS intensity was associated with a higher level of physical and cognitive impairment at NH admission. Conclusions Among community‐dwelling duals with ADRD, Medicaid HCBS generosity was associated with a lower likelihood of NH admission and greater functional impairment at NH admission.