Until now, the relationships between late-life depression and Alzheimer’s Disease (AD) and vice versa have only been investigated in terms of one-directional relationships. However, due to the central neuropathological mechanisms underlying both diseases, it is proposed that the interaction is bi-directional. These mechanisms include the stress-response hypothesis, amyloid hypothesis, inflammatory hypothesis, and genetic hypothesis. By reviewing these shared underlying mechanisms, as well as investigating the evidence for both one-directional relationships, a new model is proposed, namely the bi-directional threshold model. Whereas previous research only focused on one-directional interaction, this model is novel in accounting for the bi-directional interaction between AD and late-life depression. Thereby the model contributes to the literature on late-life depression and AD by serving as a starting point for further research. A better understanding of this new model could have major implications in ameliorating the course of both clinical conditions.