Loss-of-function mutations in CLN3 cause juvenile Batten disease, featuring neurodegeneration and early-stage neuroinflammation. How loss of CLN3 function leads to early neuroinflammation is not yet understood. Here, we have comprehensively studied microglia from Cln3∆ex7/8 mice, a genetically accurate disease model. Loss of CLN3 function in microglia leads to lysosomal storage material accumulation and abnormal morphology of subcellular organelles. We also discovered pathological proteomic signatures consistent with defects in lysosomal function and indicative of abnormal lipid metabolism. CLN3-deficient microglia were unable to efficiently turnover myelin and metabolize the associated lipids, showing defects in lipid droplet formation and cholesterol accumulation.