Niemann-Pick type C (NPC) disease is an inherited lysosomal storage disorder mainly driven by mutations in the NPC1 gene, causing lipid accumulation within late endosomes/lysosomes and resulting in progressive neurodegeneration. Although microglial activation precedes neuronal loss, it remains elusive whether loss of the membrane protein NPC1 in microglia actively contributes to NPC pathology. In a mouse model with depletion of NPC1 in myeloid cells, we report severe alterations in microglial lipidomic profiles, including the enrichment of bis(monoacylglycero)phosphate, increased cholesterol, and a decrease in cholesteryl esters. Lipid dyshomeostasis was associated with microglial hyperactivity, marked by an increase in translocator protein 18 kDa (TSPO). These hyperactive microglia initiated a pathological cascade resembling NPC-like phenotypes, including a shortened life span, motor impairments, astrogliosis, neuroaxonal pathology, and increased neurofilament light chain (NF-L), a neuronal injury biomarker. As observed in the mouse model, patients with NPC showed increased NF-L in the blood and microglial hyperactivity, as visualized by TSPO-PET imaging. Reduced TSPO expression in blood-derived macrophages of patients with NPC was measured after N-acetyl-l-leucine treatment, which has been recently shown to have beneficial effects in patients with NPC, suggesting that TSPO is a potential marker to monitor therapeutic interventions for NPC. Conclusively, these results demonstrate that myeloid dysfunction, driven by the loss of NPC1, contributes to NPC disease and should be further investigated for therapeutic targeting and disease monitoring.