Niemann-Pick disease, type C1 (NPC1) is a neurodegenerative disorder with limited treatment options. NPC1 is associated with neuroinflammation; however, attempts to therapeutically target neuroinflammation in NPC1 have had mixed success. We show here that NPC1 neuroinflammation is characterized by an atypical microglia activation phenotype. Specifically, Npc1-/- microglia demonstrated altered morphology, reduced levels of lineage markers and a shift toward glycolytic metabolism. Treatment with 2-hydroxypropyl-β-cyclodextrin (HPβCD), a drug currently being studied in a phase 2b/3 clinical trial, reversed all microglia-associated defects in Npc1-/- animals. In addition, impairing microglia mediated neuroinflammation by genetic deletion of IRF8 led to decreased symptoms and increased lifespan. We identified CD22 as a marker of dysregulated microglia in Npc1 mutant mice and subsequently demonstrated that elevated cerebrospinal fluid levels of CD22 in NPC1 patients responds to HPβCD administration. Collectively, these data provide the first in-depth analysis of microglia function in NPC1 and suggest possible new therapeutic approaches.