The TREM2 receptor is expressed on microglia in the brain, where it plays critical roles regulating microglia function. TREM2 engages a number of ligands involved in Alzheimer's disease, and consequent signaling triggers phagocytosis, activation, survival, and proliferation. TREM2 has emerged as a drug target for AD, however very little is known regarding the structural basis for TREM2 microglial functions. Here we investigated the engagement of oligomeric amyloid beta (oAb42) with TREM2. Using familial variants, we show that mutations in the N-terminal portion of Ab, notably residues H6 and D7, disrupt binding to TREM2. We then co-crystallized TREM2 with Ab(1-8) peptide and determined the high-resolution crystal structure. The structure revealed the peptide binds to the hydrophobic site of TREM2, closest to CDR1. Mutational and binding studies by BLI confirmed that mutations to the hydrophobic site ablate binding to oAb42. Finally, we show that these interactions are critical to triggering phagocytosis of oAb42, as oAb42 variants H6R and D7N are not phagocytosed. Altogether, these data indicate that TREM2 engages oAb42 using the hydrophobic site on TREM2, and the N-terminal portion of Ab, and that this interaction is critical to trigger signaling and phagocytosis.