E3 genotype of apolipoprotein E (ApoE) and triggering receptor expressed on myeloid cells 2 (TREM2) are critical genetic risk factors for late-onset Alzheimer’s diseases (AD) that influences the formation of plaques and neurofibrillary tangles associated with AD pathogenesis. In addition, variation in genetic association of ApoE and TREM2 in presence of lipids have been advocated to potentially regulate different aspects of AD pathology by facilitating the clearance of amyloid beta (Aβ) from brain. However, the proteinopathy and functional mechanism underlying their molecular interaction in presence of lipid remains poorly understood. Herein, to shed inherent insights into the mode of ApoE3-TREM2 interaction in both lipid and aqueous medium, we have used a combination of different state-of-the-art computational tools including knowledge-based protein–protein docking and molecular dynamics (MD) simulations. Remarkably, we find the direct involvement of regulatory complementarity-determining region-2 (CDR2) loop of TREM2 in interaction with the major hinge region and helix H4 of ApoE3. We further anticipate that ApoE3 attains distinct conformational states and forms an open and extended cavity-like structure in ApoE3-TREM2 complex in presence of lipids. Our data also exhibits reduced hydrophobicity in the ApoE3 binding interface of TREM2, which sets a baseline for reduced binding affinity towards ApoE3. Therefore, we hypothesize that this decline in hydrophobic index might have resulted due to structural variations in the H4 helix and major hinge region leading to altered TREM2 conformation in presence of lipids. Altogether, our findings demonstrate the effect of phospholipids on the structural dynamics and conformation of ApoE3, which contributes to our understanding of how APOE and TREM2 influences the development of AD. However, further experimental studies are necessary to validate and explore our findings which will open up new avenues towards development of novel therapeutic strategies for AD.