Progranulin (PGRN) is a widely expressed secreted protein that is linked to inflammation. In humans, PGRN haploinsufficiency is a major inherited cause of frontotemporal dementia (FTD), but how PGRN deficiency causes neurodegeneration is unknown. Here we show that loss of PGRN results in increased neuron loss in response to injury in the CNS. When exposed acutely to 1-methyl-4-(2′-methylphenyl)-1, 2, 3, 6-tetrahydrophine (MPTP), mice lacking PGRN (Grn–/–) showed more neuron loss and increased microgliosis compared with wild-type mice. The exacerbated neuron loss was due not to selective vulnerability of Grn–/–neurons to MPTP, but rather to an increased microglial inflammatory response. Consistent with this, conditional mutants lacking PGRN in microglia exhibited MPTP-induced phenotypes similar to Grn–/–mice. Selective depletion of PGRN from microglia in mixed cortical cultures resulted in increased death of wild-type neurons in the absence of injury. Furthermore, Grn–/–microglia treated with LPS/IFN-γ exhibited an amplified inflammatory response, and conditioned media from these microglia promoted death of cultured neurons. Our results indicate that PGRN deficiency leads to dysregulated microglial activation and thereby contributes to increased neuron loss with injury. These findings suggest that PGRN deficiency may cause increased neuron loss in other forms of CNS injury accompanied by neuroinflammation.