Consuming just seven units of alcohol a week - half the recommended maximum - fuels iron in the brain.
Booze suppresses a hormone that controls the body's absorption of the mineral - increasing cognitive decline.
"Higher brain iron in turn linked to poorer cognitive performance. Iron accumulation could underlie alcohol-related cognitive decline."
Dementia patients have been found to have higher levels in some regions - including deep grey matter. The same pattern has been found in Parkinson's sufferers.
It is linked to the formation of rogue proteins known as amyloid beta which clump together - killing neurons.
Iron from the blood is essential for brain functioning - but it needs to be tightly regulated.
The study of around 21,000 people from the U.K. adds to evidence even moderate drinking can damage mental health.
Getting through seven units or more of alcohol per week was linked with markers of higher iron in the basal ganglia.
These are groups of neurons that control motor movements, procedural learning, eye movement, cognition, emotion and more.
Iron accumulation in some areas of the brain was also associated with poorer mental skills.
Participants from the United Kingdom Biobank (UKB) reported their own alcohol consumption and underwent MRI (magnetic resonance imaging) brain scans. They were aged 40 to 69.
Almost 7,000 also had their livers imaged to assess levels of systemic iron. All individuals completed a series of simple tests to assess cognitive and motor function.
Topiwala said: "Never-drinkers appeared to have the lowest levels of brain iron. This is in keeping with our earlier work indicating there may be no safe level of alcohol consumption for brain health.
"Moderate drinking is highly prevalent, so if elevated brain iron is confirmed as a mechanism by which alcohol leads to cognitive decline, there are opportunities for intervention on a population scale."
Topiwala pointed out drugs that reduce iron in the brain, known as chelators, are already being investigated as potential Alzheimer's and Parkinson's treatments.
She added: "Alcohol-related brain iron may be partially mediated by higher systemic iron levels, but it is likely there are additional mechanisms involved.
"Brain iron accumulation is a possible mechanism for alcohol-related cognitive decline."
The NHS advises men and women to down no more than 14 units of alcohol a week - six pints of beer or 10 small glasses of wine.