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.