Domain interaction, a structural property of apolipoprotein E4 (apoE4), is predicted to contribute to the association of apoE4 with Alzheimer disease. Arg-61 apoE mice, a gene-targeted mouse model specific for domain interaction, have lower brain apoE levels and synaptic, functional, and cognitive deficits. We hypothesized that domain interaction elicits an endoplasmic reticulum (ER) stress in astrocytes and an unfolded protein response that targets Arg-61 apoE for degradation. Primary Arg-61 apoE astrocytes had less intracellular apoE than wild-type astrocytes, and unfolded protein response markers OASIS (old astrocyte specifically induced substance), ATF4, and XBP-1 and downstream effectors were up-regulated. ER stress appears to cause global astrocyte dysfunction as glucose uptake was decreased in Arg-61 apoE astrocytes, and astrocyte-conditioned medium promoted neurite outgrowth less efficiently than wild-type medium in Neuro-2a cell cultures. We showed age-dependent up-regulation of brain OASIS levels and processing in Arg-61 apoE mice. ER stress and astrocyte dysfunction represent a new paradigm underlying the association of apoE4 with neurodegeneration.