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Apolipoprotein E (APOE) ε4 is the strongest genetic risk factor for Alzheimer’s disease (AD). Although its association with AD is well-established, the impact of APOE ε4 on human brain cell function remains unclear. Here we investigated the effects of APOE ε4 on several brain cell types derived from human induced pluripotent stem cells and human APOE targeted replacement mice. Gene set enrichment and pathway analyses of whole transcriptome profiles showed that APOE ε4 is associated with dysregulation of cholesterol homeostasis in human but not mouse astrocytes and microglia. Elevated matrisome signaling associated with chemotaxis, glial activation and lipid biosynthesis in APOE ε4 mixed neuron/astrocyte cultures parallels altered pathways uncovered in cell-type deconvoluted transcriptomic data from APOE ε4 glia and AD post-mortem brains. Experimental validation of the transcriptomic findings showed that isogenic APOE ε4 is associated with increased lysosomal cholesterol levels and decreased cholesterol efflux, demonstrating decoupled lipid metabolism. APOE ε4 glia also secrete higher levels of proinflammatory chemokines, cytokines and growth factors, indicative of glial activation. Thus, APOE ε4 induces human glia-specific dysregulation that may initiate AD risk.