Haploinsufficiency of the progranulin (PGRN) gene (GRN) causes familial frontotemporal lobar degeneration (FTLD) and modulates an innate immune response in humans and in mouse models. GRN polymorphism may be linked to late-onset Alzheimer's disease (AD). However, the role of PGRN in AD pathogenesis is unknown. Here we show that PGRN inhibits amyloid β (Aβ) deposition. Selectively reducing microglial expression of PGRN in AD mouse models impaired phagocytosis, increased plaque load threefold and exacerbated cognitive deficits. Lentivirus-mediated PGRN overexpression lowered plaque load in AD mice with aggressive amyloid plaque pathology. Aβ plaque load correlated negatively with levels of hippocampal PGRN, showing the dose-dependent inhibitory effects of PGRN on plaque deposition. PGRN also protected against Aβ toxicity. Lentivirus-mediated PGRN overexpression prevented spatial memory deficits and hippocampal neuronal loss in AD mice. The protective effects of PGRN against Aβ deposition and toxicity have important therapeutic implications. We propose enhancing PGRN as a potential treatment for PGRN-deficient FTLD and AD.