The onset of Alzheimer’s disease (AD) typically occurs later in life. Importantly, however, recent genetic analysis of patients and unaffected individuals revealed multiple genetic variants associated with late-onset AD. One of the strongest genetic risk factors for AD is 𝜀4 allele of APOE encoding apolipoprotein (ApoE), which is predominantly expressed in glial cells. One of the overarching questions is whether and how this astrocyte-enriched risk factor initiates AD-associated pathology in neurons such as Aβ accumulation and neurodegeneration. Here, we use human induced pluripotent stem cells (hiPSCs) from healthy individuals and isogenic cells in which the ApoE 𝜀3 allele was replaced with an 𝜀4 allele to generate human neurons and astrocytes. We then investigate the effect of astrocytic ApoE4 on the neuronal Aβ production. We find that secretory factors in conditioned media from hiPSC-derived astrocytes carrying APOE4 significantly increased the levels of APP and Aβ secretion in hiPSC-derived neurons. Increasing cholesterol levels in culture media mimicked the effects of ApoE4 ACM by inducing the formation of lipid rafts that potentially provide a physical platform for APP localization on the membrane. We further found that reducing cholesterol levels in ApoE4 ACM with MβCD abolished its effects on neuronal lipid raft expansion and Aβ generation. Our study suggests that ApoE4 astrocytes contribute to amyloidosis by the expansion of lipid rafts and facilitate neuronal Ab production through oversupply of cholesterol.