Individuals with Alzheimer's disease (AD) often have problems in recognizing common objects. This visual agnosia may stem from difficulties in establishing appropriate visual boundaries between visually similar objects. In support of this hypothesis, Saumier, Arguin, Chertkow, and Renfrew (2001) showed that AD subjects have difficulties in establishing visual category boundaries between continuously graded shapes. In an attempt to investigate the neural basis of these impairments, the current study required a group of neurologically healthy elderly participants to categorically classify a series of ellipses varying in width while regional blood flow changes were measured using positron emission tomography (PET). Two categorization conditions were compared in order to isolate changes in cortical activity that dissociated the categorization of shapes situated either near or far from a category boundary that divided the width continuum. The participants produced a discontinuity in the probability and speed of categorizing the shapes at some point along the continuum, suggesting that the objects were classified into distinct categories. Moreover, a comparison of the PET scans obtained while the subjects were categorizing the shapes situated near vs. far form the category boundary revealed significant differences in cortical activity in the parietal and frontal brain areas. These findings suggest that both visuo-spatial and decision making mechanisms may be involved in establishing categorical distinctions between continuously graded stimuli. It is proposed that the functional role of the parietal and frontal cortical regions in establishing visual boundaries between categories of objects may be relevant for understanding object recognition impairments in AD.