Heterozygous mutations in the granulin (GRN) gene, resulting in the haploinsufficiency of the progranulin (PGRN) protein, is a leading cause of frontotemporal lobar degeneration (FTLD). Complete loss of the PGRN protein causes neuronal ceroid lipofuscinosis (NCL), a lysosomal storage disorder. Polymorphisms in the GRN gene have also been associated with several other neurodegenerative diseases, including Alzheimers disease (AD), and Parkinsons disease (PD). PGRN deficiency has been shown to cause myelination defects previously, but how PGRN regulates myelination is unknown. Here, we report that PGRN deficiency leads to a sex-dependent myelination defect with male mice showing more severe demyelination in response to cuprizone treatment. This is accompanied by exacerbated microglial proliferation and activation in the male PGRN-deficient mice. Interestingly, both male and female PGRN-deficient mice show sustained microglial activation after cuprizone removal and a defect in remyelination. Specific ablation of PGRN in microglia results in similar sex-dependent phenotypes, confirming a microglial function of PGRN. Lipid droplets accumulate in microglia specifically in male PGRN-deficient mice. RNA-seq analysis and mitochondrial function assays reveal key differences in oxidative phosphorylation in male versus female microglia under PGRN deficiency. A significant decrease in myelination and accumulation of myelin debris and lipid droplets in microglia were found in the corpus callosum regions of FTLD patients with GRN mutations. Taken together, our data support that PGRN deficiency leads to sex-dependent alterations in microglia with subsequent myelination defects.