Dysfunction of microglia, the brain's immune cells, is linked to neurodegeneration. Homozygous missense mutations in TREM2 cause Nasu-Hakola disease (NHD), an early-onset dementia. To study the consequences of these TREM2 variants, we generated induced pluripotent stem cell-derived microglia-like cells (iPSC-MGLCs) from patients with NHD caused by homozygous T66M or W50C missense mutations. iPSC-MGLCs expressed microglial markers and secreted higher levels of TREM2 than primary macrophages. TREM2 expression and secretion were reduced in variant lines. LPS-mediated cytokine secretion was comparable between control and TREM2 variant iPSC-MGLCs, whereas survival was markedly reduced in cells harboring missense mutations when compared with controls. Furthermore, TREM2 missense mutations caused a marked impairment in the phagocytosis of apoptotic bodies, but not in Escherichia coli or zymosan substrates. Coupled with changes in apoptotic cell-induced cytokine release and migration, these data identify specific deficits in the ability of iPSC-MGLCs harboring TREM2 missense mutations to respond to specific pathogenic signals. Garcia-Reitboeck et al. describe the generation of human induced pluripotent stem cell-derived microglia-like cells from patients with early-onset dementia caused by variants in the immune receptor gene TREM2. They observed functional deficits in TREM2 variant cells, including reduced soluble TREM2 secretion, selectively reduced phagocytosis of apoptotic neuronal cells, and a deficit in migratory capacity.