The two genetic polymorphisms, rs7412 and rs429358, that collectively form the e2, e3, and e4 alleles of apolipoprotein E (APOE) are among the most widely studied sequence variants in the genome. The predominant model for testing APOE involves the haplotype combinations of e2, e3, and e4 and has been basis of associations with dementia, atherosclerosis, and serum lipid levels. Here, we demonstrate the functional independence of these two component sites, with rs7412 contributing to the majority of variance in serum LDL (p=10-20), whereas rs429358 alone influences variance in CSF amyloid-ß42 (Aß42) (p=10(-17)). This latter relationship is also reflected in the association of APOE with dementia, where rs429358 strongly influences disease (p=10(-67)), but rs7412 does not. Models based upon e2, e3, and e4 explained less variance for both dementia risk and CSF Aß42 than did rs429358 alone. When adjusted for CSF Aß42, the association of rs429358 with dementia is greatly reduced but remains significant indicating that APOE polymorphism influences disease by additional mechanisms distinct from Aß42 metabolism. We reach four principal conclusion from this study: 1) rs429358 alone is responsible for the association of APOE with dementia; 2) The association of APOE with dementia is substantially mediated by its effect on CNS Aß42 levels; 3) The association of APOE with dementia is not mediated by its impact on peripheral lipid metabolism; and 4) The dichotomy of effects of rs429358 and rs7412 represents one of the best examples of genetic pleiotropy for complex traits known and illustrates the importance of allelic heterogeneity in APOE.