Apolipoprotein E (apoE) alleles are important genetic risk factors for Alzheimer's disease (AD), with the epsilon 4 allele increasing and the epsilon 2 allele decreasing the risk of developing AD. ApoE is the major apolipoprotein that modulates cholesterol transport in the central nervous system, cholesterol being an essential component of membranes for maintaining their structure and functions. Epidemiological studies have suggested a link between serum cholesterol levels and AD development and the potential therapeutic effectiveness of statins for AD; and furthermore, biological studies have shown that amyloid P-protein (A beta) secretion is modulated by cellular cholesterol level. However, other lines of evidence show controversial results. In addition to the role of cholesterol in A beta generation, different interactions of cholesterol with A beta and its role in AD pathogenesis have been shown, i.e. A beta affects cholesterol dynamics in neurons, and altered cholesterol metabolism in turn leads to neurodegeneration with abnormally phosphorylated tau (tauopathy). In this review, the reciprocal interactions between cholesterol and A beta, and the role of cholesterol in tauopathy are discussed. The isoform-specific involvement of apoE in this cascade, in which high-density lipoprotein-like particles are generated and supplied to neurons to maintain cholesterol homeostasis, is also discussed.