Improved life expectancy is increasing the number of older adults who suffer from motor-cognitive decline. Unfortunately, conventional balance exercise programs are not tailored to patients with cognitive impairments, and exercise adherence is often poor due to unsupervised settings. This study describes the acceptability and feasibility of a sensor-based in-home interactive exercise system, called tele-Exergame, used by older adults with mild cognitive impairment (MCI) or dementia. Our tele-Exergame is specifically designed to improve balance and cognition during distractive conditioning while a telemedicine interface remotely supervises the exercise, and its exercises are gamified balance tasks with explicit augmented visual feedback. Fourteen adults with MCI or dementia (Age = 68.1 ± 5.4 years, 12 females) participated and completed exergame twice weekly for six weeks at their homes. Before and after 6 weeks, participants’ acceptance was assessed by Technology Acceptance Model (TAM) questionnaire, and participants’ cognition and anxiety level were evaluated by the Montreal Cognitive Assessment (MoCA) and Beck Anxiety Inventory (BAI), respectively. Results support acceptability, perceived benefits, and positive attitudes toward the use of the system. The findings of this study support the feasibility, acceptability, and potential benefit of tele-Exergame to preserve cognitive function among older adults with MCI and dementia.