The SORL1 gene encodes the sortilin related receptor protein SORLA, a sorting receptor that regulates endo-lysosomal trafficking of various substrates. Loss of function variants in SORL1 are causative for Alzheimer's disease (AD) and decreased expression of SORLA has been repeatedly observed in human AD brains. SORL1 is highly expressed by microglia, the tissue resident immune cells of the brain. Loss of SORLA leads to enlarged lysosomes in hiPSC-derived microglia like cells (hMGLs). However, whether SORLA deficiency contributes to microglia dysfunction and how this is relevant to AD is not known. In this study, we show that loss of SORLA results in decreased lysosomal degradation and lysosomal enzyme activity due to altered trafficking of lysosomal enzymes in hMGLs. Furthermore, lysosomal exocytosis, an important process involved in immune responses and cellular signaling, is also impaired in SORL1 deficient microglia. Phagocytic uptake of fibrillar amyloid beta 1-42 and synaptosomes is increased in SORLA deficient hMGLs, but due to reduced lysosomal degradation, these substrates aberrantly accumulate in lysosomes. Overall, these data highlight the microglial endo-lysosomal network as a potential novel pathway through which SORL1 may increase AD risk and contribute to development of AD. Additionally, our findings may inform development of novel lysosome and microglia associated drug targets for AD.