High levels of Reactive Oxygen Species (ROS) cause neurodegeneration. We previously found that high levels of ROS lead to lipid droplets (LD) accumulation prior to neurodegeneration. These lipids are heavily peroxidated. We showed that increasing ROS in neurons alone will cause glial LD accumulation, suggesting that lipids are transferred from neurons to glia. We therefore explored the sources of energy and lipids that lead to LD accumulation in glia. We found that lactate is a critical source of energy for glial LD accumulation. Importantly, the lipids produced in neurons depend on fatty acid transport proteins and apolipoproteins for their transport and accumulation into glia. Surprisingly, human APOE2 and APOE3 alleles can functionally substitute for the fly apolipoprotein, Glaz in lipid transport. In contrast, APOE4, the most important Alzheimer's Disease susceptibility allele is severely impaired in lipid transport and acts as a loss-of-function mutation. We argue that Apoe is required for LD formation in glia and these LD play a protective role by scavenging ROS via peroxidated lipids.