Mutations in progranulin ( GRN ) cause frontotemporal dementia ( GRN -FTD) due to deficiency of the pleiotropic protein progranulin. GRN -FTD exhibits diverse pathologies including lysosome dysfunction, lipofuscinosis, microgliosis, and neuroinflammation. Yet, how progranulin loss causes disease remains unresolved. Here, we report that non-invasive retinal imaging of GRN -FTD patients revealed deficits in photoreceptors and the retinal pigment epithelium (RPE) that correlate with cognitive decline. Likewise, Grn -/- mice exhibit early RPE dysfunction, microglial activation, and subsequent photoreceptor loss. Super-resolution live imaging and transcriptomic analyses identified RPE mitochondria as an early driver of retinal dysfunction. Loss of mitochondrial fission protein 1 (MTFP1) in Grn -/- RPE causes mitochondrial hyperfusion and bioenergetic defects, leading to NF-kB-mediated activation of complement C3a-C3a receptor signaling, which drives further mitochondrial hyperfusion and retinal inflammation. C3aR antagonism restores RPE mitochondrial integrity and limits subretinal microglial activation. Our study identifies a previously unrecognized mechanism by which progranulin modulates mitochondrial integrity and complement-mediated neuroinflammation.