Using high‐resolution resting state functional magnetic resonance imaging (fMRI), the present study tested the hypothesis that ABCA7 genetic risk differentially affects intra‐medial temporal lobe (MTL) functional connectivity between MTL subfields, versus internetwork connectivity of the MTL with the medial prefrontal cortex (mPFC), in nondemented older African Americans. Although the association of ABCA7 risk variants with Alzheimer's disease (AD) has been confirmed worldwide, its effect size on the relative odds of being diagnosed with AD is significantly higher in African Americans. However, little is known about the neural correlates of cognitive function in older African Americans and how they relate to AD risk conferred by ABCA7. In a case–control fMRI study of 36 healthy African Americans, we observed ABCA7 related impairments in behavioral generalization that was mediated by dissociation in entorhinal cortex (EC) resting state functional connectivity. Specifically, ABCA7 risk variant was associated with EC‐hippocampus hyper‐synchronization and EC‐mPFC hypo‐synchronization. Carriers of the risk genotype also had a significantly smaller anterolateral EC, despite our finding no group differences on standardized neuropsychological tests. Our findings suggest a model where impaired cortical connectivity leads to a more functionally isolated EC at rest, which translates into aberrant EC‐hippocampus hyper‐synchronization resulting in generalization deficits. While we cannot identify the exact mechanism underlying the observed alterations in EC structure and network function, considering the relevance of Aβ in ABCA7 related AD pathogenesis, the results of our study may reflect the synergistic reinforcement between amyloid and tau pathology in the EC, which significantly increases tau‐induced neuronal loss and accelerates synaptic alterations. Finally, our results add to a growing literature suggesting that generalization of learning may be a useful tool for assessing the mild cognitive deficits seen in the earliest phases of prodromal AD, even before the more commonly reported deficits in episodic memory arise.