Alzheimer's disease (AD) is a neurodegenerative disease that causes late-onset dementia. The R47H variant of the microglial receptor TREM2 triples AD risk in genome-wide association studies. In mouse AD models, TREM2-deficient microglia fail to proliferate and cluster around the amyloid-β plaques characteristic of AD. In vitro, the common variant (CV) of TREM2 binds anionic lipids, whereas R47H mutation impairs binding. However, in vivo, the identity of TREM2 ligands and effect of the R47H variant remain unknown. We generated transgenic mice expressing human CV or R47H TREM2 and lacking endogenous TREM2 in the 5XFAD AD model. Only the CV transgene restored amyloid-β-induced microgliosis and microglial activation, indicating that R47H impairs TREM2 function in vivo. Remarkably, soluble TREM2 was found on neurons and plaques in CV- but not R47H-expressing 5XFAD brains, although in vitro CV and R47H were shed similarly via Adam17 proteolytic activity. These results demonstrate that TREM2 interacts with neurons and plaques duing amyloid-β accumulation and R47H impairs this interaction.