Low-energy electrons play a prominent role in radiation therapy and biology as they are the largest contributor to the absorbed dose. However, no tractable theory exists to describe the interaction of low-energy electrons with condensed media. This article presents a new approach to include exchange and correlation (XC) effects in inelastic electron scattering at low energies (below ∼10 keV) in the context of the dielectric theory. Specifically, an optical-data model of the dielectric response function of liquid water is developed that goes beyond the random phase approximation (RPA) by accounting for XC effects using the concept of the many-body local-field correction (LFC). It is shown that the experimental energy-loss-function of liquid water can be reproduced by including into the RPA dispersion relations XC effects (up to second order) calculated in the time-dependent local-density approximation with the addition of phonon-induced broadening in N. D. Mermin's relaxation-time approximation. Additional XC effects related to the incident and/or struck electrons are included by means of the vertex correction calculated by a modified Hubbard formula for the exchange-only LFC. Within the first Born approximation, the present XC corrections cause a significantly larger reduction (∼10–50%) to the inelastic cross section compared to the commonly used Mott and Ochkur approximations, while also yielding much better agreement with the recent experimental data for amorphous ice. The current work offers a manageable, yet rigorous, approach for including non-Born effects in the calculation of inelastic cross sections for low-energy electrons in liquid water, which due to its generality, can be easily extended to other condensed media.