Microglia and neuroinflammation are implicated in the development and progression of Alzheimer's disease (AD). To better understand microglia-mediated processes in AD, we studied the function of INPP5D/SHIP1, a gene linked to AD through GWAS. Immunostaining and single nucleus RNA sequencing confirmed that INPP5D expression in the adult human brain is largely restricted to microglia. Examination of prefrontal cortex across a large cohort revealed reduced full length INPP5D protein levels in AD patient brains compared to cognitively normal controls. The functional consequences of reduced INPP5D activity were evaluated in human induced pluripotent stem cell derived microglia (iMGLs), using both pharmacological inhibition of the phosphatase activity of INPP5D and genetic reduction in copy number. Unbiased transcriptional and proteomic profiling of iMGLs suggested an upregulation of innate immune signaling pathways, lower levels of scavenger receptors, and altered inflammasome signaling with INPP5D reduction. INPP5D inhibition induced the secretion of IL-1ß and IL-18, further implicating inflammasome activation. Inflammasome activation was confirmed through visualization of inflammasome formation through ASC immunostaining in INPP5D-inhibited iMGLs, increased cleaved caspase-1 and through rescue of elevated IL-1ß and IL-18 with caspase-1 and NLRP3 inhibitors. This work implicates INPP5D as a regulator of inflammasome signaling in human microglia.