The epsilon 4 allele of APOE-encoding apolipoprotein (ApoE) is one of the strongest genetic risk factors for Alzheimer's disease (AD). One of the overarching questions is whether and how this astrocyte-enriched risk factor initiates AD-associated pathology in neurons such as amyloid-B (AB) accumulation. Here, we generate neurons and astrocytes from isogenic human induced pluripotent stem cells (hiPSCs) carrying either APOE epsilon 3 or APOE epsilon 4 allele and investigate the effect of astrocytic ApoE4 on neuronal AB production. Secretory factors in conditioned media from ApoE4 astrocytes significantly increased amyloid precursor protein (APP) levels and AB secretion in neurons. We further found that increased cholesterol secretion from ApoE4 astrocytes was necessary and sufficient to induce the formation of lipid rafts that potentially provide a physical platform for APP localization and facilitate its processing. Our study reveals the contribution of ApoE4 astrocytes to amyloidosis in neurons by expanding lipid rafts and facilitating AB production through an oversupply of cholesterol.