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The posteromedial cortices and other regions of the “default network” are particularly vulnerable to the pathology of Alzheimer disease (AD). In this study, we performed functional magnetic resonance imaging (fMRI) to investigate whether the presence of apolipoprotein E (APOE) ε4 allele and degree of memory impairment were associated with the dysfunction of these brain regions. Seventy-five elderly subjects ranging from cognitively normal to mild AD, divided into ε4 carriers and noncarriers, underwent fMRI during a memory-encoding task. Across all subjects, posteromedial and ventral anterior cingulate cortices (key components of the default network) as well as right middle and inferior prefrontal regions demonstrated reduced task-induced deactivation in the ε4 carriers relative to noncarriers. Even among cognitively normal subjects, ε4 carriers demonstrated reduced posteromedial deactivation compared with the noncarriers in the same regions which demonstrated failure of deactivation in AD patients. Greater failure of posteromedial deactivation was related to worse memory performance (delayed recall) across all subjects and within the range of cognitively normal subjects. In summary, the posteromedial cortical fMRI response pattern is modulated both by the presence of APOE ε4 and episodic memory capability. Altered fMRI activity of the posteromedial areas of the brain default network may be an early indicator of risk for AD.