Iron dysregulation has been implicated in multiple neurodegenerative diseases, including Parkinson's disease (PD). Iron-loaded microglia are frequently found in affected brain regions, but how iron accumulation influences microglia physiology and contributes to neurodegeneration is poorly understood. Here we show that human induced pluripotent stem cell-derived microglia grown in a tri-culture system are highly responsive to iron and susceptible to ferroptosis, an iron-dependent form of cell death. Furthermore, iron overload causes a marked shift in the microglial transcriptional state that overlaps with a transcriptomic signature found in PD postmortem brain microglia. Our data also show that this microglial response contributes to neurodegeneration, as removal of microglia from the tri-culture system substantially delayed iron-induced neurotoxicity. To elucidate the mechanisms regulating iron response in microglia, we performed a genome-wide CRISPR screen and identified novel regulators of ferroptosis, including the vesicle trafficking gene SEC24B. These data suggest a critical role for microglia iron overload and ferroptosis in neurodegeneration.