Background: A mutation in the C9orf72 gene is the most common genetic mutation of familial and sporadic ALS, as well as familial FTD. While prior studies have focused on elucidating the mechanisms of neuronal dysfunction and neurodegeneration associated with this genetic mutation, the contribution of microglia to disease pathogenesis in the ALS/FTD disease spectrum remains poorly understood. Methods: Here, we generated a new disease model consisting of cultured C9orf72 ALS/FTD patient-derived induced pluripotent stem cells differentiated into microglia (iPSC-MG). We used this model to study the intrinsic cellular and molecular phenotypes of microglia triggered by the C9orf72 gene mutation. Results: We show that C9orf72 ALS/FTD iPSC-MG have a similar transcriptional profile compared to control iPSC-MG, despite the presence of C9orf72-associated phenotypes including reduced C9orf72 protein levels and dipeptide-repeat protein translation. Interestingly, C9orf72 ALS/FTD iPSC-MG exhibit intrinsic dysfunction of phagocytic activity upon exposure to Aβ or brain synaptoneurosomes and display a heightened inflammatory response. Detailed analysis of the endosomal and lysosomal pathways revealed altered expression of endosomal marker early endosome antigen 1 and lysosomal associated membrane protein 1 in C9orf72 ALS/FTD iPSC-MG, which was confirmed in patient postmortem tissues. Conclusions: These findings demonstrate that unstimulated C9orf72 iPSC-MG mono-cultures share a largely similar transcriptome profile with control microglia, despite the presence of C9orf72 disease phenotypes. The dysfunction of the endosomal-lysosomal pathway as demonstrated by aberrant microglia phagocytosis and engulfment of cellular debris and brain pathogens suggests that disease-related microglia phenotypes are not intrinsic but instead require microglia to be activated. In summary, the C9orf72 iPSC-MG culture system provides a novel human disease model to study the role of microglia in C9orf72 ALS/FTD disease pathogenesis.