Human genetic data indicate that microglial dysfunction contributes to the pathology of Alzheimer's disease (AD), exemplified by the identification of coding variants in triggering receptor expressed on myeloid cells 2 (TREM2) and, more recently, in PLCG2, a phospholipase-encoding gene expressed in microglia. Although studies in mouse models have implicated specific Trem2-dependent microglial functions in AD, the underlying molecular mechanisms and translatability to human disease remain poorly defined. In this study, we used genetically engineered human induced pluripotent stem cell-derived microglia-like cells to show that TREM2 signals through PLCγ2 to mediate cell survival, phagocytosis, processing of neuronal debris, and lipid metabolism. Loss of TREM2 or PLCγ2 signaling leads to a shared signature of transcriptional dysregulation that underlies these phenotypes. Independent of TREM2, PLCγ2 also signals downstream of Toll-like receptors to mediate inflammatory responses. Therefore, PLCγ2 activity regulates divergent microglial functions via distinct TREM2-dependent and -independent signaling and might be involved in the transition to a microglial state associated with neurodegenerative disease.