Should I remind her that her parents are long departed?

Thanks to all. I will follow your recommendations.

First, it is not fantasy, it is very real to your wife. It is best, I think, to let them continue with whatever they think is real. You cannot reason with dementia. I went through this with my mom and if I tried to explain that her parents were long gone, she would become very emotional and depressed. I stopped trying to straighten her out, her parents were on vacation, out to dinner, a movie, anything. That was much easier on her and me.

What you call a fantasy is her reality. Try to respect it if you can. "Oh Hun, your parents are gone this week. We'll call them next week."

Neither approach will do anything for her stability. But going along with her is less apt to cause her pain.

I vote for the fantasy. When my Mom asked about my dad I would tell her he had a meeting for his fraternal organization. And when she wanted to see her brothers, I reminded her they had a soccer game. All had been gone for decades. My feeling is there is no sense in making them go through the loss again. Good luck.