Krabbe disease, also named globoid cell (GC) leukodystrophy (GLD) for its distinct lipid-laden macrophages, is a severe leukodystrophy caused by galactosylceramidase (GALC) mutations. Hematopoietic stem cell transplant (HSCT) ameliorates disease and is associated with central nervous system (CNS) engraftment of GALC(+) donor macrophages. Yet, the role of macrophages in GLD pathophysiology and HSCT remains unclear. Using single-cell sequencing, we revealed early interferon response signatures that preceded progressively severe macrophage dyshomeostasis and identified a molecular signature of GCs, which we validated in human brain specimens. Genetic depletion and direct microglia replacement by CNS monocyte injection rapidly replaced >80% of endogenous microglia with healthy macrophages in the twitcher (Galc(W355)(∗)) mouse model of GLD. Perinatal microglia replacement completely normalized transcriptional signatures, rescued histopathology, and doubled average survival. Overall, we uncovered distinct forms of microglial dysfunction and evidence that direct, CNS-limited microglia replacement improves a monogenic neurodegenerative disease, identifying a promising therapeutic target.