Haploinsufficiency of progranulin (PGRN) is a leading cause of frontotemporal lobar degeneration (FTLD). Loss of PGRN leads to lysosome dysfunction during aging. TMEM106B, a gene encoding a lysosomal membrane protein, is the main risk factor for FTLD with PGRN haploinsufficiency. But how TMEM106B affects FTLD disease progression remains to be determined. Here, we report that TMEM106B deficiency in mice leads to accumulation of lysosome vacuoles at the distal end of the axon initial segment in motor neurons and the development of FTLD-related pathology during aging. Ablation of both PGRN and TMEM106B in mice results in severe neuronal loss and glial activation in the spinal cord, retina, and brain. Enlarged lysosomes are frequently found in both microglia and astrocytes. Loss of both PGRN and TMEM106B results in an increased accumulation of lysosomal vacuoles in the axon initial segment of motor neurons and enhances the manifestation of FTLD phenotypes with a much earlier onset. These results provide novel insights into the role of TMEM106B in the lysosome, in brain aging, and in FTLD pathogenesis.