Background: Cognitive event-related potential (P300) is an index of cognitive processing time. It was found to be prolonged in dementia, renal, and hepatic encephalopathies, but was not extensively assessed in respiratory failure. Objective: To evaluate P300 changes in patients with respiratory failure, and especially those with mild or subclinical hypoxic–hypercapnic encephalopathy. Methods: Auditory event-related evoked potential P300 latency was measured using an oddball paradigm in patients with respiratory failure due to any cause (partial pressure of oxygen in arterial blood (PO2) should be 75 mm/Hg or less). Apart from blood gases measurement, patients underwent the Mini-Mental State Examination (MMSE). Patient performances were compared with that of matched normal control. Patients were admitted into the study from outpatient clinics and wards at King Khalid University Hospital and Sahara Hospital. Results: Thirty-four patients (12 women, 22 men) were admitted to the study. Ages ranged from 19–67 years with a mean of 46.1 years. Respiratory failure was severe or very severe in 11 patients (33%), and mild or moderate in the rest (66%). Mean value for PO2 and partial pressure of carbon dioxide in arterial blood (PCO2) were 63.7 and 45.2 mm/Hg, respectively. pH mean was 7.4 and O2 saturation was 90.7%. P300 latency ranged from 218 to 393 milliseconds, with a mean of 338.4 milliseconds. In comparison with control (309.9 milliseconds), there was a significant difference (P = 0.007). P300 amplitude differences were not significant. No significant difference in MMSE was noted between mild and severe respiratory failure. Results of detailed neuropsychological assessment were clearly abnormal but were limited by the small number of tested patients. P300 latency changes correlated significantly with age as well as severity of respiratory failure. P300 was also significantly delayed whether hypoxia occurred with or without hypercapnia. Conclusion: Results show a significant delay of P300 latency in patients with severe and mild respiratory failure. This was associated with subclinical encephalopathy in most patients, evidenced by a near-normal MMSE score. Apart from confirming the importance of P300 latency measurement as a marker of respiratory encephalopathy, this study asserts the causal relationship between hypoxemia and cognitive derangement. Furthermore, it promotes the early use of oxygen therapy in a selected group of patients with mild or moderate respiratory failure, who have responsibilities which involve taking rapid critical decisions.