The apolipoprotein E4 (APOE4) variant is the strongest genetic risk factor for Alzheimer disease (AD), while the APOE2 allele is protective. A major question is how different APOE genotypes affect the physiology of astrocytes, the main APOE-producing brain cells. Here, we differentiated human APOE-isogenic induced pluripotent stem cells (iPSCs) (APOE4, E3, E2, and APOE knockout [APOE-KO]) to functional "iAstrocytes". Mass-spectrometry-based proteomic analysis showed genotype-dependent reductions of cholesterol and lipid metabolic and biosynthetic pathways (reduction: APOE4 >E3 >E2). Cholesterol efflux and biosynthesis were reduced in APOE4 iAstrocytes, while subcellular localization of cholesterol in lysosomes was elevated. An increase in immunoregulatory proteomic pathways (APOE4 >E3 >E2) was accompanied by elevated cytokine release in APOE4 cells (APOE4 >E3 >E2 >KO). Activation of iAstrocytes exacerbated proteomic changes and cytokine secretion mostly in APOE4 iAstrocytes, while APOE2 and APOE-KO iAstrocytes were least affected. Taken together, APOE4 iAstrocytes reveal a disease-relevant phenotype, causing dysregulated cholesterol/lipid homeostasis, increased inflammatory signaling, and reduced β-amyloid uptake, while APOE2 iAstrocytes show opposing effects.