The Cochrane Collaboration carried out a systematic review of eight exercise trials involving more than 300 patients living at home or in care.
Exercise did little for patients' moods, the  research concluded.
But it did help them carry out daily activities such as rising from a chair, and boosted their cognitive skills.
Whether these benefits improve quality of life is still unclear, but the study authors say the findings are reason for optimism.
Dementia affects some 800,000 people in the UK. And the number of people with the condition is steadily increasing because people are living longer.
It is estimated that by 2021, the number of people with dementia in the UK will have increased to around one million.
With no cure, ways to improve the lives of those living with the condition are vital.
Researcher Dorothy Forbes, of the University of Alberta, and colleagues who carried out the Cochrane review, said: "Clearly, further research is needed to be able to develop best practice guidelines to enable healthcare providers to advise people with dementia living at home or in institutions.
"We also need to understand what level and intensity of exercise is beneficial for someone with dementia."
Dr Laura Phipps of Alzheimer's Research UK said: "We do know that exercise is an important part of keeping healthy, and though we can't say that exercise will prevent dementia, evidence does suggest it can help reduce the risk of the condition as part of a healthy lifestyle."
People with dementia who exercise improve their thinking abilities and everyday life, a body of medical research concludes.