Validating sensitive markers of hippocampal degeneration is fundamental for understanding neurodegenerative conditions such as Alzheimer’s disease. In this paper, we test the hypothesis that free-water in the hippocampus will be more sensitive to early stages of cognitive decline than hippocampal volume, and that free-water in hippocampus will increase across distinct clinical stages of Alzheimer’s disease. We examined two separate cohorts (N = 126; N = 112) of cognitively normal controls, early and late mild cognitive impairment (MCI), and Alzheimer’s disease. Demographic, clinical, diffusion-weighted and T1-weighted imaging, and positron emission tomography (PET) imaging were assessed. Results indicated elevated hippocampal free-water in early MCI individuals compared to controls across both cohorts. In contrast, there was no difference in volume of these regions between controls and early MCI. ADNI free-water values in the hippocampus was associated with low CSF AB1-42 levels and high global amyloid PET values. Free-water imaging of the hippocampus can serve as an early stage marker for AD and provides a complementary measure of AD neurodegeneration using non-invasive imaging.