Microglia, the tissue-resident macrophages in the brain, are damage sensors that react to nearly any perturbation, including neurodegenerative diseases such as Alzheimer's disease (AD). Here, using single-cell RNA sequencing, we determined the transcriptome of more than 1,600 individual microglia cells isolated from the hippocampus of a mouse model of severe neurodegeneration with AD-like phenotypes and of control mice at multiple time points during progression of neurodegeneration. In this neurodegeneration model, we discovered two molecularly distinct reactive microglia phenotypes that are typified by modules of co-regulated type I and type II interferon response genes, respectively. Furthermore, our work identified previously unobserved heterogeneity in the response of microglia to neurodegeneration, discovered disease stage-specific microglia cell states, revealed the trajectory of cellular reprogramming of microglia in response to neurodegeneration, and uncovered the underlying transcriptional programs.