The brain's primary immune cells, microglia, are a leading causal cell type in Alzheimer's disease (AD). Yet, the mechanisms by which microglia can drive neurodegeneration remain unresolved. Here, we discover that a conserved stress signaling pathway, the integrated stress response (ISR), characterizes a microglia subset with neurodegenerative outcomes. Autonomous activation of ISR in microglia is sufficient to induce early features of the ultrastructurally distinct "dark microglia" linked to pathological synapse loss. In AD models, microglial ISR activation exacerbates neurodegenerative pathologies and synapse loss while its inhibition ameliorates them. Mechanistically, we present evidence that ISR activation promotes the secretion of toxic lipids by microglia, impairing neuron homeostasis and survival in vitro. Accordingly, pharmacological inhibition of ISR or lipid synthesis mitigates synapse loss in AD models. Our results demonstrate that microglial ISR activation represents a neurodegenerative phenotype, which may be sustained, at least in part, by the secretion of toxic lipids.