Fractional Gaussian noise (fGn) provides a parsimonious model for stationary increments of a self-similar process parameterised by the Hurst exponent, H, and variance, sigma2. Fractional Gaussian noise with H < 0.5 demonstrates negatively autocorrelated or antipersistent behaviour; fGn with H > 0.5 demonstrates 1/f, long memory or persistent behaviour; and the special case of fGn with H = 0.5 corresponds to classical Gaussian white noise. We comparatively evaluate four possible estimators of fGn parameters, one method implemented in the time domain and three in the wavelet domain. We show that a wavelet-based maximum likelihood (ML) estimator yields the most efficient estimates of H and sigma2 in simulated fGn with 0 < H < 1. Applying this estimator to fMRI data acquired in the "resting" state from healthy young and older volunteers, we show empirically that fGn provides an accommodating model for diverse species of fMRI noise, assuming adequate preprocessing to correct effects of head movement, and that voxels with H > 0.5 tend to be concentrated in cortex whereas voxels with H < 0.5 are more frequently located in ventricles and sulcal CSF. The wavelet-ML estimator can be generalised to estimate the parameter vector beta for general linear modelling (GLM) of a physiological response to experimental stimulation and we demonstrate nominal type I error control in multiple testing of beta, divided by its standard error, in simulated and biological data under the null hypothesis beta = 0. We illustrate these methods principally by showing that there are significant differences between patients with early Alzheimer's disease (AD) and age-matched comparison subjects in the persistence of fGn in the medial and lateral temporal lobes, insula, dorsal cingulate/medial premotor cortex, and left pre- and postcentral gyrus: patients with AD had greater persistence of resting fMRI noise (larger H) in these regions. Comparable abnormalities in the AD patients were also identified by a permutation test of local differences in the first-order autoregression AR(1) coefficient, which was significantly more positive in patients. However, we found that the Hurst exponent provided a more sensitive metric than the AR(1) coefficient to detect these differences, perhaps because neurophysiological changes in early AD are naturally better described in terms of abnormal salience of long memory dynamics than a change in the strength of association between immediately consecutive time points. We conclude that parsimonious mapping of fMRI noise properties in terms of fGn parameters efficiently estimated in the wavelet domain is feasible and can enhance insight into the pathophysiology of Alzheimer's disease.