TREM2 is a membrane receptor solely expressed on microglia in normal brain. In this review we outline recent advances in TREM2 biology and its implications for microglial function, with particular emphasis on findings from iPSC-derived microglia (iMG) expressing TREM2 loss-of-function mutations. Alterations in receptor proximal and distal signalling underlie TREM2 risk variants linked to neurodegenerative disease, principally NH-linked FTD, and late-onset AD, but emerging data suggest roles for TREM2 in PD, MS and ALS. TREM2 downstream functions include phagocytosis of myelin debris, amyloid beta peptides, and phosphatidylserine-expressing cells (resulting from damage or stress). Microglial survival, migration, DAMP signalling, inflammasome activation, and intercellular signalling including tau spreading via exosomes, as well as roles for sTREM2 in protection and as a biomarker are discussed. The role of TREM2 in metabolic homeostasis, and immunometabolic switching are discussed regarding microglial responses to damage and protection. The use of iPSC models to investigate the role of TREM2 in AD, PD, MS, ALS, and other neurodegenerative diseases could prove invaluable due to their ability to recapitulate human pathology, allowing a full understanding of TREM2 and microglial involvement in the underlying disease mechanisms and progression. This article is part of the Special Issue on "Microglia".