Amyloid β (Aβ) forms aggregates in the Alzheimer’s disease brain and is well known for its pathological roles. Recent studies show that it also regulates neuronal physiology in the healthy brain. Whether Aβ also regulates glial physiology in the normal brain, however, has remained unclear. In this article, we describe the discovery of a novel signaling pathway activated by the monomeric form of Aβ that plays essential roles in the regulation of microglial activity and the assembly of neocortex during development. We find that activation of this pathway depends on the function of amyloid precursor (APP) and heterotrimeric G proteins in microglia and inhibits microglial immune activation at transcriptional and post-transcriptional levels. Genetic disruption of this pathway during neocortical development results in microglial dysregulation and excessive matrix proteinase activation, leading to basement membrane degradation, neuronal ectopia, and laminar disruption. These results uncover a previously unknown function of Aβ as a negative regulator of brain microglia and substantially elucidate the molecular mechanisms underlying this regulation. Considering the prominence of Aβ and neuroinflammation in the pathology of Alzheimer’s disease, they also highlight a potentially overlooked role of Aβ monomer depletion in the development of the disease.