The ε4 allele of apolipoprotein E (APOE) is the dominant genetic risk factor for late-onset Alzheimer's disease (AD). However, the reason APOE4 is associated with increased AD risk remains a source of debate. Neuronal hyperactivity is an early phenotype in both AD mouse models and in human AD, which may play a direct role in the pathogenesis of the disease. Here, we have identified an APOE4-associated hyperactivity phenotype in the brains of aged APOE mice using four complimentary techniques-fMRI, in vitro electrophysiology, in vivo electrophysiology, and metabolomics-with the most prominent hyperactivity occurring in the entorhinal cortex. Further analysis revealed that this neuronal hyperactivity is driven by decreased background inhibition caused by reduced responsiveness of excitatory neurons to GABAergic inhibitory inputs. Given the observations of neuronal hyperactivity in prodromal AD, we propose that this APOE4-driven hyperactivity may be a causative factor driving increased risk of AD among APOE4 carriers.