Disability in multiple sclerosis (MS) is driven in part by the failure of remyelination and progressive neurodegeneration. Microglia, and specifically triggering receptor expressed on myeloid cells 2 (TREM2), a factor highly expressed in microglia, have been shown to play an important role in remyelination. Here, using a focal demyelination model in the brain, we demonstrate that demyelination is persistent in TREM2 knockout mice, lasting more than 6 weeks after lysolecithin injection and resulting in substantial neurodegeneration. We also find that TREM2 knockout mice exhibit an altered glial response following demyelination. TREM2 knockout microglia demonstrate defects in migration and phagocytosis of myelin debris. In addition, human monocyte-derived macrophages from subjects with a TREM2 mutation prevalent in human disease also show a defect in myelin debris phagocytosis. Together, we highlight the central role of TREM2 signaling in remyelination and neuroprotection. These findings provide insights into how chronic demyelination might lead to axonal damage and could help identify novel neuroprotective therapeutic targets for MS.