Apolipoprotein E (APOE) genetic variants have been shown to modify Alzheimer’s disease (AD) risk. We previously identified an APOE3 variant (APOE3-V236E), named APOE3-Jacksonville (APOE3-Jac), associated with healthy brain aging and reduced risk for AD and dementia with Lewy bodies (DLB). Herein, we resolved the functional mechanism by which APOE3-Jac reduces APOE aggregation and enhances its lipidation in human brains, as well as in cellular and biochemical assays. Compared to APOE3, expression of APOE3-Jac in astrocytes increases several classes of lipids in the brain including phosphatidylserine, phosphatidylethanolamine, phosphatidic acid, and sulfatide, critical for synaptic functions. Mice expressing APOE3-Jac have reduced amyloid pathology, plaque-associated immune responses, and neuritic dystrophy. The V236E substitution is also sufficient to reduce the aggregation of APOE4, whose gene allele is a major genetic risk factor for AD and DLB. These findings suggest that targeting APOE aggregation might be an effective strategy for treating a subgroup of individuals with AD and DLB.