To study isoform-specific effects of apolipoprotein E (apoE) in vivo, we generated mice with a human APOE*2 allele in place of the mouse Apoe gene via targeted gene replacement in embryonic stem cells. Mice expressing human apoE2 (2/2) have virtually all the characteristics of type III hyperlipoproteinemia. Their plasma cholesterol and triglyceride levels are both twice to three times those in (normolipidemic) mice that are expressing human apoE3 (3/3) made in an identical manner. The 2/2 mice are markedly defective in clearing beta-migrating VLDL particles, and spontaneously develop atherosclerotic plaques, even on a regular diet. An atherogenic diet, high in fat and cholesterol, exacerbates development of atherosclerosis and xanthomas in the 2/2 mice. Thus, comparisons between the 2/2 and 3/3 mice unequivocally demonstrate that a single amino acid difference (Arg158 Cys) in the apoE protein is sufficient to cause type III HLP and spontaneous atherosclerosis in mice.