Missense mutations (e.g. R47H) of the microglial receptor TREM2 increase risk of Alzheimer’s disease (AD), and the soluble ectodomain of wild-type TREM2 (sTREM2) appears to protect in vivo, but the underlying mechanisms are unclear. We show that Aβ oligomers bind to TREM2, inducing shedding of sTREM2. Wild-type sTREM2 inhibits Aβ oligomerization, fibrillization and neurotoxicity, and disaggregates preformed Aβ oligomers and protofibrils. In contrast, the R47H AD-risk variant of sTREM2 is less able to bind and disaggregate oligomeric Aβ, but rather promotes Aβ protofibril formation and neurotoxicity. Thus, in addition to mediating phagocytosis, wild-type TREM2 may protect against amyloid pathology by Aβ-induced release of sTREM2 that blocks Aβ aggregation and neurotoxicity; while R47H sTREM2 promotes Aβ aggregation into neurotoxic forms, which may explain why the R47H variant gene increases AD risk several fold.