AIMS AND OBJECTIVES: This article present findings from a study aiming to explore the psychosocial climate and its influence on the well-being of people with dementia in a psycho-geriatric hospital unit. BACKGROUND: Environmental influence in dementia is well explored in relation to the physical environment; however, few studies have explored the psychosocial environment and its influence on well-being. DESIGN: The study had a grounded theory design. METHODS: Participant observations were conducted in a psycho-geriatric ward for assessment and treatment of people with dementia in Sweden (n = 36 hours). Data were collected and analysed in a dialectical fashion using the principles of grounded theory methodology. RESULTS: The basic social process that best accounted for the variation in the psychosocial climate and well-being of patients at the unit was 'staff presence or absence', conceptualised as the core category. Three categories emerged in relation to the core category; 'sharing place and moment', 'sharing place but not moment' and 'sharing neither place nor moment'. CONCLUSIONS: Staff were catalysts for the psychosocial climate and when being present and engaged they could create a climate interpreted as at-homeness which supported patient well-being. When being absent, the climate quickly became anxious and this facilitated patient ill-being. To provide quality care for people with dementia staff need to be aware of their role in setting the emotional tone of the psychosocial climate and also that this emotional tone significantly influences patient well-being. RELEVANCE TO CLINICAL PRACTICE: The findings are clinically relevant and can be operationalised and applied in clinical practice. Awareness of the intimate connection between staff presence and absence, the psychosocial climate and patient well-being highlights an ethical responsibility to question: routines that promote staff absence; a culture of merely 'doing for'; and nursing tasks which involve a minimum of staff-patient interaction. The findings have implications for managers as well as for clinical staff.