Communication and communication behaviors in situational contexts are essential conditions for well-being and quality of life in people with dementia. Measuring methods, however, are limited. The CODEM instrument, a standardized observational communication behavior assessment tool, was developed and evaluated on the basis of the current state of research in dementia care and social-communicative behavior. Initially, interrater reliability was examined by means of videoratings (N = 10 people with dementia). Thereupon, six caregivers in six German nursing homes observed 69 residents suffering from dementia and used CODEM to rate their communication behavior. The interrater reliability of CODEM was excellent (mean κ = .79; intraclass correlation = .91). Statistical analysis indicated that CODEM had excellent internal consistency (Cronbach’s α = .95). CODEM also showed excellent convergent validity (Pearson’s R = .88) as well as discriminant validity (Pearson’s R = .63). Confirmatory factor analysis verified the two-factor solution of verbal/content aspects and nonverbal/relationship aspects. With regard to the severity of the disease, the content and relational aspects of communication exhibited different trends. CODEM proved to be a reliable, valid, and sensitive assessment tool for examining communication behavior in the field of dementia. CODEM also provides researchers a feasible examination tool for measuring effects of psychosocial intervention studies that strive to improve communication behavior and well-being in dementia.