Amyotrophic lateral sclerosis (ALS) is a neurodegenerative disease characterized by progressive motor neuron loss, with additional pathophysiological involvement of non-neuronal cells such as microglia. The commonest ALS-associated genetic variant is a hexanucleotide repeat expansion (HRE) mutation in C9orf72. Here, we study its consequences for microglial function using human iPSC-derived microglia. By RNA-sequencing, we identify enrichment of pathways associated with immune cell activation and cyto-/chemokines in C9orf72 HRE mutant microglia versus healthy controls, most prominently after LPS priming. Specifically, LPS-primed C9orf72 HRE mutant microglia show consistently increased expression and release of matrix metalloproteinase-9 (MMP9). LPS-primed C9orf72 HRE mutant microglia are toxic to co-cultured healthy motor neurons, which is ameliorated by concomitant application of an MMP9 inhibitor. Finally, we identify release of dipeptidyl peptidase-4 (DPP4) as a marker for MMP9-dependent microglial dysregulation in co-culture. These results demonstrate cellular dysfunction of C9orf72 HRE mutant microglia, and a non-cell-autonomous role in driving C9orf72-ALS pathophysiology in motor neurons through MMP9 signaling.