Despite strong evidence that apolipoprotein E4 (APOE4) increases Alzheimer’s Disease (AD) risk, the etiology and relevant cell types behind human-specific APOE4-related AD pathogenesis remain unclear. In particular, microglia and the immune system have long been implicated in AD, but their effects on human AD pathology are under-explored. Here, we examine the role of both APOE4 and microglia in AD using a chimeric model with human cells in an in vivo mouse context and pharmacological microglial depletion. Specifically, we transplanted human homozygous APOE4, isogenic APOE3, and APOE-KO induced pluripotent stem cell (iPSC)-derived neurons transplanted into human APOE3 or APOE4 knock-in mice, then depleted microglia in half these chimeric mice for several months. In our study, we found that both neuronal apoE and microglial presence are important for formation of Aβ and tau pathologies in an APOE isoform-dependent manner. Single-cell RNA-sequencing (scRNA-seq) analysis also identified two pro-inflammatory microglial subtypes with high MHC-II gene expression that are enriched in chimeric mice with human neuron transplants, particularly those expressing neuronal apoE4. These findings highlights neuronal apoE and immune cells as a potential target for AD-related therapeutics.