Upon demyelinating injury, microglia orchestrate a regenerative response that promotes myelin repair, thereby restoring rapid signal propagation and protecting axons from further damage. Whereas the essential phagocytic function of microglia for remyelination is well known, the underlying metabolic pathways required for myelin debris clearance are poorly understood. Here, we show that cholesterol esterification in male mouse microglia/macrophages is a necessary adaptive response to myelin debris uptake and required for the generation of lipid droplets upon demyelinating injury. When lipid droplet biogenesis is defective, innate immune cells do not resolve, and the regenerative response fails. We found that triggering receptor expressed on myeloid cells 2 (TREM2)–deficient mice are unable to adapt to excess cholesterol exposure, form fewer lipid droplets, and build up endoplasmic reticulum (ER) stress. Alleviating ER stress in TREM2-deficient mice restores lipid droplet biogenesis and resolves the innate immune response. Thus, we conclude that TREM2-dependent formation of lipid droplets constitute a protective response required for remyelination to occur.