I present a theory of Alzheimer's disease (AD) that explains its symptoms, pathology, and risk factors. To do this, I introduce a new theory of brain plasticity that elucidates the physiological roles of AD-related agents. New events generate synaptic and branching candidates competing for long-term enhancement. Competition resolution crucially depends on the formation of membrane lipid rafts, which requires astrocyte-produced cholesterol. Sporadic AD is caused by impaired formation of plasma-membrane lipid rafts, preventing the conversion of short- to long-term memory and yielding excessive tau phosphorylation, intracellular cholesterol accumulation, synaptic dysfunction, and neurodegeneration. Amyloid β (Aβ) production is promoted by cholesterol during the switch to competition resolution, and cholesterol accumulation stimulates chronic Aβ production, secretion, and aggregation. The theory addresses all of the major established facts known about the disease and is supported by strong evidence.