Alzheimer disease (AD) is a severe, life-threatening illness characterized by gradual memory loss. The classic histological features of AD include extracellular formation of β-amyloid plaques (Aβ), intracellular neurofibrillary tangles (NFT), and synaptic loss. Recently, accumulated evidence has confirmed the critical role of microglia in the development and exacerbation of AD. When Aβ forms deposits, microglia quickly respond to restore brain physiology by activating a series of repair mechanisms. However, prolonged microglial activation is considered detrimental and may aggravate AD progression. To date, there are no curative therapies for AD. The advent of stem cell transplantation offers novel strategies to treat AD in animal models. Furthermore, studies have reported that transplanted stem cells might ameliorate AD symptoms by regulating microglial functions, from detrimental to protective. This review focuses on the crucial functions of microglia in AD and examines the reactions of microglia to transplanted stem cells.