BACE-1 is required for generating β-amyloid (Aβ) peptides in Alzheimer's disease (AD). Here, we report that microglial BACE-1 regulates the transition of homeostatic to stage 1 disease-associated microglia (DAM-1) signature. BACE-1 deficiency elevated levels of transcription factors including Jun, Jund, Btg2, Erg1, Junb, Fos, and Fosb in the transition signature, which transition from more homeostatic to highly phagocytic DAM-1. Consistently, similar transition-state microglia in human AD brains correlated with lowered levels of BACE-1 expression. Targeted deletion of Bace-1 in adult 5xFAD mice microglia elevated these phagocytic microglia, correlated with significant reduction in amyloid plaques without synaptic toxicity. Silencing or pharmacologically inhibiting BACE-1 in cultured microglia-derived cells shows higher phagocytic function in microglia. Mechanistic exploration suggests that abolished cleavage of IL-1R2 and Toll-like receptors via BACE-1 inhibition contributes to the enhanced signaling via the PI3K and p38 MAPK kinase pathway. Together, targeted inhibition of BACE-1 in microglia may offer AD treatment.