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Abstract Background Microglia mediate amyloid-beta peptide (Aβ)-induced neuroinflammation, which is one of the key events in the pathogenesis of Alzheimer’s disease (AD). Decoy receptor 3 (DcR3)/TNFRSF6B is a pleiotropic immunomodulator that promotes macrophage differentiation toward the M2 anti-inflammatory phenotype. Based on its role as an immunosupressor, we examined whether DcR3 could alleviate neuroinflammation and AD-like deficits in the central nervous system. Method We crossed human APP transgenic mice (line J20) with human DcR3 transgenic mice to generate wild-type, APP, DcR3, and APP/DcR3 mice for pathological analysis. The Morris water maze, fear conditioning test, open-field, and elevated-plus maze were used to access their cognitive behavioral changes. Furthermore, the pathological and immune profiles were examined by immunostaining, ELISA, Q-PCR, and IP. In vitro assays were designed to examine DcR3-mediated innate cytokine profile alteration and the potential protective mechanism. Results We reported that DcR3 ameliorates hippocampus-dependent memory deficits and reduces amyloid plaque deposition in APP transgenic mouse. The protective mechanism of DcR3 mediates through interacting with heparan sulfate proteoglycans and activating IL-4+YM1+ M2a-like microglia that reduces Aβ-induced proinflammatory cytokines and promotes phagocytosis ability of microglia. Conclusion The neuroprotective effect of DcR3 is mediated via modulating microglia activation into anti-inflammatory M2a phenotype, and upregulating DcR3 expression in the brain may be a potential therapeutic approach for AD.