Background: Heterozygous loss-of-function mutations in the progranulin gene (GRN) lead to frontotemporal lobar degeneration (FTLD) while the complete loss of progranulin (PGRN) function results in neuronal ceroid lipofuscinosis (NCL), a lysosomal storage disease. Thus the growth factor-like protein PGRN may play an important role in lysosomal degradation. In line with a potential lysosomal function, PGRN is partially localized and processed in lysosomes. In the central nervous system (CNS), PGRN is like other lysosomal proteins highly expressed in microglia, further supporting an important role in protein degradation. We have previously reported that cathepsin (Cat) D is elevated in GRN-associated FTLD patients and Grn knockout mice. However, the primary mechanism that causes impaired protein degradation and elevated CatD levels upon PGRN deficiency in NCL and FTLD remains unclear. Methods: mRNA expression analysis of selected lysosomal hydrolases, lysosomal membrane proteins and autophagy-related genes was performed by NanoString nCounter panel. Protein expression, maturation and in vitro activity of Cat D, B and L in mouse embryonic fibroblasts (MEF) and brains of Grn knockout mice were investigated. To selectively characterize microglial and non-microglial brain cells, an acutely isolated microglia fraction using MACS microbeads (Miltenyi Biotec) conjugated with CD11b antibody and a microglia-depleted fraction were analyzed for protein expression and maturation of selected cathepsins. Results: We demonstrate that loss of PGRN results in enhanced expression, maturation and in vitro activity of Cat D, B and L in mouse embryonic fibroblasts and brain extracts of aged Grn knockout mice. Consistent with an overall enhanced expression and activity of lysosomal proteases in brain of Grn knockout mice, we observed an age-dependent transcriptional upregulation of certain lysosomal proteases. Thus, lysosomal dysfunction is not reflected by transcriptional downregulation of lysosomal proteases but rather by the upregulation of certain lysosomal proteases in an age-dependent manner. Surprisingly, cell specific analyses identified early lysosomal deficits in microglia before enhanced cathepsin levels could be detected in other brain cells, suggesting different functional consequences on lysosomal homeostasis in microglia and other brain cells upon lack of PGRN. Conclusions: The present study uncovers early and selective lysosomal dysfunctions in Grn knockout microglia/macrophages. Dysregulated lysosomal homeostasis in microglia might trigger compensatory lysosomal changes in other brain cells.