Background: Symptoms of psychosis is one of the common clinical manifestations of Alzheimer’s disease (AD). However, the pathophysiology behind psychosis is unknown.Objective: The aim of the present study was to explore the relationship between Apolipoprotein E (APOE) genotype, Lewy body pathology, and psychosis in AD. Method: The data was obtained from the National Alzheimer’s disease Coordinating Centre (NACC), using the Uniform Data Set and the Neuropathology Data Set. Subjects with frequent neuritic plaque on CERAD, and Braak Stage of V or VI, corresponding to high probability of AD based on the NIA-AA Regan criteria were included in the analysis. Results: Subjects with two copies of ε4 alleles were significantly more likely to develop psychosis, both delusions and/or hallucinations, during the course of their illness. This association was gender-specific, only reaching significance in females. Our findings further showed that presence of two copies of ε4 allele was positively associated with the formation of Lewy bodies. Only in females with Lewy bodies was the effect of two copies of ε4 allele significant, reaching an odd ratio of 4.5. Conclusion: The APOE ε4 allele has a female-specific effect in inducing psychosis in AD through the formation of Lewy bodies.