The Alzheimer’s disease (AD) human genetic landscape indicates microglia are an important cell type in the brain that modifies disease risk. A common loss-of-functon(LOF) coding variant in paired immunoglobulin-like type 2 receptor alpha (PILRA) is associated with reduced risk of AD, however the mechanisms underlying this protective effect are poorly defined. Here we identify biological functions of PILRA, an immunoreceptor tyrosine-based inhibitory motif (ITIM)-containing receptor, in human iPSC-derived microglia and chimeric mice. CRISPR-mediated PILRA knockout (KO) microglia increase ApoE uptake and lipid droplet formation concomitant with reduced proinflammatory lipids and metabolites and increased antioxidant lipids. Despite increased lipid droplets, PILRA KO microglia exhibit improved mitochondrial function, increased lysosomal degradation, enhanced migration, reduced reactive oxygen species, and significantly attenuated cytokine responses to proinflammatory stimuli. In addition, we found PILRA mediates downstream effects via STAT1/3 signaling. Single cell RNA-sequencing of human PILRA KO microglia isolated from AD chimeric mice showed similar biological pathways were regulated in a disease context. Finally, we identify an antagonist PILRA antibody that phenocopies PILRA LOF. Together, these findings define PILRA inhibition as a therapeutic approach to modulate microglial immunometabolism, thus identifying this receptor as a pharmacologically tractable therapeutic target for AD.