The cell surface receptor TREM2 is a key genetic risk factor and drug target in Alzheimer's disease (AD). In the brain, TREM2 is expressed in microglia, where it undergoes proteolytic cleavage, linked to AD risk, but the responsible protease in microglia is still unknown. Another microglial-expressed AD risk factor is catalytically inactive rhomboid 2 (iRhom2, RHBDF2), which binds to and acts as a non-catalytic subunit of the metalloprotease ADAM17. A potential role in TREM2 proteolysis is not yet known. Using microglial-like BV2 cells, bone marrow-derived macrophages, and primary murine microglia, we identify iRhom2 as a modifier of ADAM17-mediated TREM2 shedding. Loss of iRhom2 increased TREM2 in cell lysates and at the cell surface and enhanced TREM2 signaling and microglial phagocytosis of the amyloid β-peptide (Aβ). This study establishes ADAM17 as a physiological TREM2 protease in microglia and suggests iRhom2 as a potential drug target for modulating TREM2 proteolysis in AD.