Heterozygous, loss-of-function mutations in the granulin gene (GRN) encoding progranulin (PGRN) are a common cause of frontotemporal dementia (FTD). Homozygous GRN mutations cause neuronal ceroid lipofuscinosis-11 (CLN11), a lysosome storage disease. PGRN is a secreted glycoprotein that can be proteolytically cleaved into seven bioactive 6 kDa granulins. However, it is unclear how deficiency of PGRN and granulins causes neurodegeneration. To gain insight into the mechanisms of FTD pathogenesis, we utilized Tandem Mass Tag isobaric labeling mass spectrometry to perform an unbiased quantitative proteomic analysis of whole-brain tissue from wild type (Grn^+/+) and Grn knockout (Grn^−/−) mice at 3- and 19-months of age. At 3-months lysosomal proteins (i.e. Gns, Scarb2, Hexb) are selectively increased indicating lysosomal dysfunction is an early consequence of PGRN deficiency. Additionally, proteins involved in lipid metabolism (Acly, Apoc3, Asah1, Gpld1, Ppt1, and Naaa) are decreased; suggesting lysosomal degradation of lipids may be impaired in the Grn^−/− brain. Systems biology using weighted correlation network analysis (WGCNA) of the Grn^−/− brain proteome identified 26 modules of highly co-expressed proteins. Three modules strongly correlated to Grn deficiency and were enriched with lysosomal proteins (Gpnmb, CtsD, CtsZ, and Tpp1) and inflammatory proteins (Lgals3, GFAP, CD44, S100a, and C1qa). We find that lysosomal dysregulation is exacerbated with age in the Grn^−/− mouse brain leading to neuroinflammation, synaptic loss, and decreased markers of oligodendrocytes, myelin, and neurons. In particular, GPNMB and LGALS3 (galectin-3) were upregulated by microglia and elevated in FTD-GRN brain samples, indicating common pathogenic pathways are dysregulated in human FTD cases and Grn^−/− mice. GPNMB levels were significantly increased in the cerebrospinal fluid of FTD-GRN patients, but not in MAPT or C9orf72 carriers, suggesting GPNMB could be a biomarker specific to FTD-GRN to monitor disease onset, progression, and drug response. Our findings support the idea that insufficiency of PGRN and granulins in humans causes neurodegeneration through lysosomal dysfunction, defects in autophagy, and neuroinflammation, which could be targeted to develop effective therapies.