Extracellular amyloid plaques, intracellular neurofibrillary tangles, and loss of basal forebrain cholinergic neurons in the brains of Alzheimer's disease (AD) patients may be the end result of abnormalities in lipid metabolism and peroxidation that may be caused, or exacerbated, by beta-amyloid peptide (Abeta). Apolipoprotein E (apoE) is a major apolipoprotein in the brain, mediating the transport and clearance of lipids and Abeta. ApoE-dependent dendritic and synaptic regeneration may be less efficient with apoE4, and this may result in, or unmask, age-related neurodegenerative changes. The increased risk of AD associated with apoE4 may be modulated by diet, vascular risk factors, and genetic polymorphisms that affect the function of other transporter proteins and enzymes involved in brain lipid homeostasis. Diet and apoE lipoproteins influence membrane lipid raft composition and the properties of enzymes, transporter proteins, and receptors mediating Abeta production and degradation, tau phosphorylation, glutamate and glucose uptake, and neuronal signal transduction. The level and isoform of apoE may influence whether Abeta is likely to be metabolized or deposited. This review examines the current evidence for diet, lipid homeostasis, and apoE in the pathogenesis of AD. Effects on the cholinergic system and response to cholinesterase inhibitors by APOE allele carrier status are discussed briefly.