Microglia play a critical role in the clearance of myelin debris, thereby ensuring functional recovery from neural injury. Here, using mouse model of demyelination following two-point LPC injection, we show that the microglial autophagic-lysosomal pathway becomes overactivated in response to severe demyelination, leading to lipid droplet accumulation and a dysfunctional and pro-inflammatory microglial state, and finally failed myelin debris clearance and spatial learning deficits. Data from genetic approaches and pharmacological modulations, via microglial Atg5 deficient mice and intraventricular BAF A1 administration, respectively, demonstrate that staged suppression of excessive autophagic-lysosomal activation in microglia, but not sustained inhibition, results in better myelin debris degradation and exerts protective effects against demyelination. Combined multi-omics results in vitro further showed that enhanced lipid metabolism, especially the activation of the linoleic acid pathway, underlies this protective effect. Supplementation with conjugated linoleic acid (CLA), both in vivo and in vitro, could mimic these effects, including attenuating inflammation and restoring microglial pro-regenerative properties, finally resulting in better recovery from demyelination injuries and improved spatial learning function, by activating the peroxisome proliferator-activated receptor (PPAR-γ) pathway. Therefore, we propose that pharmacological inhibition targeting microglial autophagic-lysosomal overactivation or supplementation with CLA could represent a potential therapeutic strategy in demyelinated disorders.