Experimental therapies for Alzheimer's disease (AD) are focused on enhanced clearance of neurotoxic Aβ peptides from brain. Microglia can be neuroprotective by phagocytosing Aβ; however, this comes at the cost of activated innate immunity that causes paracrine damage to neurons. Here, we show that ablation of E prostanoid receptor subtype 2 (EP2) significantly increased microglial-mediated clearance of Aβ peptides from AD brain sections and enhanced microglial Aβ phagocytosis in cell culture. The enhanced phagocytosis was PKC-dependent and was associated with elevated microglial secretion of the chemoattractant chemokines, macrophage inflammatory protein-1α and macrophage chemoattractant protein-1. This suggested that microglial activation is negatively regulated by EP2 signaling through suppression of prophagocytic cytokine secretion. However, despite this enhancement of Aβ phagocytosis, lack of EP2 completely suppressed Aβ-activated microglia-mediated paracrine neurotoxicity. These data demonstrate that blockade of microglial EP2 is a highly desirable mechanism for AD therapy that can maximize neuroprotective actions while minimizing bystander damage to neurons.