Aberrant aggregation of the RNA-binding protein TDP-43 in neurons is a hallmark of frontotemporal lobar degeneration caused by haploinsufficiency in the gene encoding progranulin1,2. However, the mechanism leading to TDP-43 proteinopathy remains unclear. Here we use single-nucleus RNA sequencing to show that progranulin deficiency promotes microglial transition from a homeostatic to a disease-specific state that causes endolysosomal dysfunction and neurodegeneration in mice. These defects persis...