Prion diseases or prionoses are a group of rapidly progressing and invariably fatal neurodegenerative diseases. The pathogenesis of prionoses is associated with self-replication and connectomal spread of PrPSc, a disease specific conformer of the prion protein. Microglia undergo activation early in the course of prion pathogenesis and exert opposing roles in PrPSc mediated neurodegeneration. While clearance of PrPSc and apoptotic neurons have disease-limiting effect, microglia-driven neuroinflammation bears deleterious consequences to neuronal networks. Apolipoprotein (apo) E is a lipid transporting protein with pleiotropic functions, which include controlling of the phagocytic and inflammatory characteristics of activated microglia in neurodegenerative diseases. Despite the significance of microglia in prion pathogenesis, the role of apoE in prionoses has not been established. We showed here that infection of wild type mice with 22L mouse adapted scrapie strain is associated with significant increase in the total brain apoE protein and mRNA levels and also with a conspicuous cell-type shift in the apoE expression. There is reduced expression of apoE in activated astrocytes and marked upregulation of apoE expression by activated microglia. We also showed apoE ablation exaggerates PrPSc mediated neurodegeneration. Apoe−/− mice have shorter disease incubation period, increased load of spongiform lesion, pronounced neuronal loss, and exaggerated astro and microgliosis. Astrocytes of Apoe−/− mice display salient upregulation of transcriptomic markers defining A1 neurotoxic astrocytes while microglia show upregulation of transcriptomic markers characteristic for microglial neurodegenerative phenotype. There is impaired clearance of PrPSc and dying neurons by microglia in Apoe−/− mice along with increased level of proinflammatory cytokines. Our work indicates that apoE absence renders clearance of PrPSc and dying neurons by microglia inefficient, while the excess of neuronal debris promotes microglial neurodegenerative phenotype aggravating the vicious cycle of neuronal death and neuroinflammation.