An early substantial loss of basal forebrain cholinergic neurons (BFCNs) is a constant feature of Alzheimer's disease (AD) and is associated with deficits in spatial learning and memory. Induced pluripotent stem cells (iPSCs) derived from patients with AD as well as from normal controls could be efficiently differentiated into neurons with characteristics of BFCNs. We used BFCNs derived from iPSCs to model sporadic AD with a focus on patients with ApoE3/E4 genotypes (AD-E3/E4). BFCNs derived from AD-E3/E4 patients showed typical AD biochemical features evidenced by increased Aβ42/Aβ40 ratios. AD-E3/E4 neurons also exhibited altered responses to treatment with γ-secretase inhibitors compared to control BFCNs or neurons derived from patients with familial AD. BFCNs from patients with AD-E3/E4 also exhibited increased vulnerability to glutamate-mediated cell death which correlated with increased intracellular free calcium upon glutamate exposure. The ability to generate BFCNs with an AD phenotype is a significant step both for understanding disease mechanisms and for facilitating screening for agents that promote synaptic integrity and neuronal survival.