(Abridged) The results of a Chandra X-ray Observatory High-Energy Transmission Grating (HETG) observation of the nova-like cataclysmic binary AE Aqr are described. First, the X-ray spectrum is that of an optically thin multi-temperature thermal plasma; the X-ray emission lines are broad, with widths that increase with the line energy, from sigma~1 eV for O VIII to sigma~5.5 eV for Si XIV; the X-ray spectrum is reasonably well fit by a plasma model with a Gaussian emission measure distribution that peaks at log T(K)=7.16, has a width sigma=0.48, an Fe abundance equal to 0.44 times solar, and other metal (primarily Ne, Mg, and Si) abundances equal to 0.76 times solar; and for a distance d=100 pc, the total emission measure EM=8.0E53 cm^-3 and the 0.5-10 keV luminosity L_X=1.1E31 erg/s. Second, based on the f/(i+r) flux ratios of the forbidden (f), intercombination (i), and recombination (r) lines of the He alpha triplets of N VI, O VII, and Ne IX measured by Itoh et al. in the XMM-Newton Reflection Grating Spectrometer spectrum and those of O VII, Ne IX, Mg XI, and Si XIII in the Chandra HETG spectrum, either the electron density of the plasma increases with temperature by over three orders of magnitude, from n_e~6E10 cm^-3 for N VI to n_e~1E14 cm^-3 for SI XIII, and/or the plasma is significantly affected by photoexcitation. Third, the radial velocity of the X-ray emission lines varies on the white dwarf spin phase, with two oscillations per spin cycle and an amplitude K~160 km/s. These results appear to be inconsistent with the recent models of Itoh et al., Ikhsanov, and Venter & Meintjes of an extended, low-density source of X-rays in AE Aqr, but instead support earlier models in which the dominant source of X-rays is of high density and/or in close proximity to the white dwarf.