Microglia become progressively activated and seemingly dysfunctional with age, and genetic studies have linked these cells to the pathogenesis of a growing number of neurodegenerative diseases. Here we report a striking buildup of lipid droplets in microglia with aging in mouse and human brains. These cells, which we call lipid droplet-accumulating microglia (LAM), are defective in phagocytosis, produce high levels of reactive oxygen species, and secrete proinflammatory cytokines. RNA sequencing analysis of LAM revealed a transcriptional profile driven by innate inflammation distinct from previously reported microglial states. An unbiased CRISPR-Cas9 screen identified genetic modifiers of lipid droplet formation; surprisingly, variants of several of these genes, including progranulin, are causes of autosomal dominant forms of human neurodegenerative diseases. We thus propose that LAM contribute to agerelated and genetic forms of neurodegeneration.