The discovery that heterozygous and homozygous mutations in the gene encoding progranulin are causally linked to frontotemporal dementia and lysosomal storage disease, respectively, reveals previously unrecognized roles of the progranulin protein in regulating lysosome biogenesis and function. Given the importance of lysosomes in cellular homeostasis, it is not surprising that progranulin deficiency has pleiotropic effects on neural circuit development and maintenance, stress response, innate immunity and ageing. This Progress article reviews recent advances in progranulin biology emphasizing its roles in lysosomal function and brain innate immunity, and outlines future avenues of investigation that may lead to new therapeutic approaches for neurodegeneration.