Our group and others have reported a series of studies showing that heavy burdens of diarrheal diseases in the formative first two years of life in children in urban shantytowns have profound consequences of impaired physical and cognitive development lasting into later childhood and schooling. Based on these previous studies showing that apolipoprotein E4 (APOE4) is relatively common in favela children, we review recent data suggesting a protective role for the APOE4 allele in the cognitive and physical development of children with heavy burdens of diarrhea in early childhood. Despite being a marker for cognitive decline with Alzheimer's and cardiovascular diseases later in life, APOE4 appears to be important for cognitive development under the stress of heavy diarrhea. The reviewed findings provide a potential explanation for the survival advantage in evolution of the thrifty APOE4 allele and raise questions about its implications for human development under life-style changes and environmental challenges.