Lipofuscin is an autofluorescent (AF) pigment formed by lipids and misfolded proteins that accumulates in post-mitotic cells with advanced age. Here we immunophenotyped microglia in the brain of old C57BL/6 mice (>18 months-old) and demonstrate that in comparison to young mice, one third of old microglia are AF, characterized by profound changes in lipid and iron content, phagocytic activity, and oxidative stress. Pharmacological depletion of microglia in old mice eliminated the AF microglia following repopulation and reversed microglial dysfunction. Age-related neurological deficits and neurodegeneration after traumatic brain injury (TBI) were attenuated in old mice lacking AF microglia. Furthermore, increased phagocytic activity, lysosomal burden, and lipid accumulation in microglia persisted for up to one year after TBI, were modified by APOE4 genotype, and chronically driven by phagocyte-mediated oxidative stress. Thus, AF may reflect a pathological state in aging microglia associated with increased phagocytosis of neurons and myelin and inflammatory neurodegeneration that can be further accelerated by TBI.