Progranulin (PGRN) haploinsufficiency resulting from loss-of-function mutations in the PGRN gene causes frontotemporal lobar degeneration accompanied by TDP-43 accumulation, and patients with homozygous mutations in the PGRN gene present with neuronal ceroid lipofuscinosis. Although it remains unknown why PGRN deficiency causes neurodegenerative diseases, there is increasing evidence that PGRN is implicated in lysosomal functions. Here, we show PGRN is a secretory lysosomal protein that regulates lysosomal function and biogenesis by controlling the acidification of lysosomes. PGRN gene expression and protein levels increased concomitantly with the increase of lysosomal biogenesis induced by lysosome alkalizers or serum starvation. Down-regulation or insufficiency of PGRN led to the increased lysosomal gene expression and protein levels, while PGRN overexpression led to the decreased lysosomal gene expression and protein levels. In particular, the level of mature cathepsin D (CTSD_mat) dramatically changed depending upon PGRN levels. The acidification of lysosomes was facilitated in cells transfected with PGRN. Then, this caused degradation of CTSD_mat by cathepsin B. Secreted PGRN is incorporated into cells via sortilin or cation-independent mannose 6-phosphate receptor, and facilitated the acidification of lysosomes and degradation of CTSD_mat. Moreover, the change of PGRN levels led to a cell-type-specific increase of insoluble TDP-43. In the brain tissue of FTLD-TDP patients with PGRN deficiency, CTSD and phosphorylated TDP-43 accumulated in neurons. Our study provides new insights into the physiological function of PGRN and the role of PGRN insufficiency in the pathogenesis of neurodegenerative diseases.