Thyroid hormone (TH) imbalance is linked to the pathophysiology of reversible dementia and Alzheimers disease (AD). It is unclear whether tissue hypothyroidism occurs in the AD brain and how it affects on AD pathology. We find that decreased iodothyronine deiodinase 2 is correlated with hippocampal hypothyroidism in early AD model mice before TH alterations in the blood. TH deficiency leads to spontaneous activation of microglia in wild-type mice under nonstimulated conditions, resulting in lowered innate immune responses of microglia in response to inflammatory stimuli or amyloid-β. In AD model mice, TH deficiency aggravates AD pathology by reducing the disease-associated microglia population and microglial phagocytosis. We find that TH deficiency reduces microglial ecto-5-nucleotidase (CD73) and inhibition of CD73 leads to impaired innate immune responses in microglia. Our findings reveal that TH shapes microglial responses to inflammatory stimuli including amyloid-β, and brain hypothyroidism in early AD model mice aggravates AD pathology by microglial dysfunction.